Plexus cotton market report

19 May '07

3 min read

So we had two events, one fundamental and one technical, that may potentially alter the mindset of short sellers. There are still around 22 mio bales worth of shorts in the market, but there may soon be no more good reason for either specs or trade shorts to hang on to their positions.

Specs shorts will stay with their position until the trend reverses and the jury is still out on whether yesterday's action was just a flash in the pan or the beginning of a reversal process. The trade may still have a few more rounds of short hedging to do before the gear shifts to predominantly buying back futures against sales of basis-long positions.

It was interesting that despite these large loan redemptions there wasn't too much hedging pressure weighing on the market today. We are not quite sure whether this was due to the fact that most of the cotton is already hedged at this point or whether shippers simply wait for a better opportunity to do so. Nevertheless, we believe that we are now in the last innings of this loan hedging game, and once this ceiling that was created by the AWP/Futures spread is removed, the market will be open to the upside.

Today's export sales report came in more or less as expected at 362'300 running bales of Upland and Pima cotton, although shipments were still lagging behind a bit at 305'100 running bales. For the season, total commitments now amount to 13.1 mio statistical bales, or just 150'000 bales shy of the current USDA estimate, while shipments are still lagging behind at 8.1 mio statistical bales, or 5.15 mio bales shy of the USDA number.

However, now that a flood of loan cotton is entering the marketplace, we shall see shipments improve markedly over the next few weeks as shippers scramble to play catch up on their sales.

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Plexus Cotton Limited

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