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News Flash
Mills price fixation to add further support to market
18 Jan '08
3 min read
Outright trade shorts amounted to a record 19.03 mio bales, which were only partially offset by trade longs, since most of the 11.92 mio 'hedge' longs are related to index funds. The CFTC report as of January 8 showed the trade even more short when options positions are included, at 19.83 mio bales net short!
Today's export sales report of 530'300 running bales of Upland and Pima must have come as a shock to the bears who have been pointing out that mills are not buying due to these elevated prices. Granted, over 60% of these sales went to Mexico and were probably made on-call, as were some of the sales to other destinations.
But the fact remains that over half a million bales of US cotton found a home and that many mills have yet to fix the price on their procurements, which adds further support to the market. The latest on-call report tells us that there are currently a record 7.03 mio bales of sales still unfixed, versus just 0.88 mio bales of purchases. This imbalance of 6.15 mio bales provides a strong layer of support underneath the market.
Even though it may have been making sense for the trade to hedge US cotton during this rising market from a profitability point of view, as the difference between the 52.00 cents loan plus carry and the futures market leaves some meat on the bone, one has to wonder how the cash flow of some of these hedgers has been affected by this 900 point run-up since early December.
When we do a quickback-of-the-napkin calculation on how much margin money the trade had to send to New York over the last five weeks, assuming an average short position of lets say 17 mio bales, we come up with a figure of around 750 million dollars!
Click here to view more:
Today's export sales report of 530'300 running bales of Upland and Pima must have come as a shock to the bears who have been pointing out that mills are not buying due to these elevated prices. Granted, over 60% of these sales went to Mexico and were probably made on-call, as were some of the sales to other destinations.
But the fact remains that over half a million bales of US cotton found a home and that many mills have yet to fix the price on their procurements, which adds further support to the market. The latest on-call report tells us that there are currently a record 7.03 mio bales of sales still unfixed, versus just 0.88 mio bales of purchases. This imbalance of 6.15 mio bales provides a strong layer of support underneath the market.
Even though it may have been making sense for the trade to hedge US cotton during this rising market from a profitability point of view, as the difference between the 52.00 cents loan plus carry and the futures market leaves some meat on the bone, one has to wonder how the cash flow of some of these hedgers has been affected by this 900 point run-up since early December.
When we do a quickback-of-the-napkin calculation on how much margin money the trade had to send to New York over the last five weeks, assuming an average short position of lets say 17 mio bales, we come up with a figure of around 750 million dollars!
Click here to view more:
Plexus Cotton Limited
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