Cotton futures post modest gains

25 Jul '08

4 min read

So where do we go from here? We still believe that cotton represents good value near 70 cents, both from a fundamental and a technical point of view. With the two largest exporters, the US and India, expected to see smaller crops this season, be it due to lower plantings or because of weather issues, we do not see any significant price pressure develop in the foreseeable future. With mills continuing their hand-to-mouth buying pattern, there should be a constant bid under the market from here on forward.

At the same time, unless any real shortage develops, it will be difficult to get much higher prices from mills. With speculators getting their wings clipped by Congress and with a trade net short position that is only about half of what it was five months ago, we feel that the dynamics that set the stage for the explosive rally in early March no longer exist. It will therefore take a real supply/demand issue this time around to get a sustainable rally going.

From a technical point of view, we feel that the market is in the process of putting in a bottom, from which it is probably going to launch some attempts at higher levels in the not to distant future. Since speculators have been adding quite a few new shorts in recent weeks, they are the likely catalyst for such breakout attempts. We would therefore not be surprised to see December shoot up towards the high 70's over the next few weeks, although we doubt that prices would have the necessary support to stay up there.

Plexus Cotton Limited

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