If weekly export sales continued at a 250'000 bales pace, it would take only about eight weeks before the balance of old crop is committed as well, including the certificated stock. Therefore, we expect this depressed market mood of today to shift into a slightly more optimistic outlook going forward, despite all the talk about demand destruction.
There is no doubt that cotton demand will suffer as a result of what is happening in the financial markets. However, with cotton prices where they currently are, we will also see further supply destruction and even if world cotton consumption were to fall by a very steep ten percent, from 120 to 108 mio bales next season, it would probably still be at or above world production, which could easily fall from the current 112/113 mio bales to somewhere around 105 to 108 mio bales in the coming season.
Another factor that will eventually weigh in favor of all commodity prices is a potential decline of the US dollar. The unprecedented rescue effort by the US government will boost an already massive amount of debt even further and this will sooner or later cause inflation and a fall in the US dollar.
While the repatriation of foreign investments and the unwinding of the carry trade have temporarily lent some strength to the US dollar, it has recently begun to decline again and we believe that over time we could see new lows against most of the world's currencies, which in turn would act in support of commodity prices.
Summing up, we feel that the downside is limited, although it may take a while until the more favorable factors we have mentioned come into play and lift the market out of its current depression.
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.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "UBM China (Shanghai)")
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
