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Yarn market improves markedly
27 Mar '10
5 min read
Next week we will get a first official look at new crop plantings, when the USDA releases its Prospective Plantings report on March 31st. The consensus is for around 10.3 million acres, but we feel that plantings will ultimately be quite a bit higher because of favorable soil conditions and an optimistic price outlook by many. We would not be surprised to see 10.8 - 11.0 million acres planted this spring, although we don't expect the USDA number to come in that high just yet.
On a global scale world production may still have a tough time catching up to consumption if we can believe reports coming out of China and India, the world's two largest cotton producers, which accounted for 54 percent of global output this season. Both countries may increase their plantings only marginally due to strong demand for food crops. If this were true, it would require the rest of the world to increase its plantings by a much more substantial margin. For example, if China and India were to increase their acreage by let's say 3%, then the rest of the world would have to boost its acreage by some 25 % to arrive at an average global increase that's big enough to close the seasonal production gap. Yields will of course play an important part in all this as well and based on the moisture profile in the Northern Hemisphere things look quite promising in that regard. Needless to say it will make for an interesting growing season with little margin for error.
So where do we go from here? We feel that there is a good chance that the market will complete the double top formation and retest support near 78-79 cents. At that point much will depend on how committed spec longs remain to their position and how aggressively the trade is going to pursue dips. Given the substantial trade short position we continue to believe that this sell-off is just another correction in an overall bullish trend that has further to go.
On a global scale world production may still have a tough time catching up to consumption if we can believe reports coming out of China and India, the world's two largest cotton producers, which accounted for 54 percent of global output this season. Both countries may increase their plantings only marginally due to strong demand for food crops. If this were true, it would require the rest of the world to increase its plantings by a much more substantial margin. For example, if China and India were to increase their acreage by let's say 3%, then the rest of the world would have to boost its acreage by some 25 % to arrive at an average global increase that's big enough to close the seasonal production gap. Yields will of course play an important part in all this as well and based on the moisture profile in the Northern Hemisphere things look quite promising in that regard. Needless to say it will make for an interesting growing season with little margin for error.
So where do we go from here? We feel that there is a good chance that the market will complete the double top formation and retest support near 78-79 cents. At that point much will depend on how committed spec longs remain to their position and how aggressively the trade is going to pursue dips. Given the substantial trade short position we continue to believe that this sell-off is just another correction in an overall bullish trend that has further to go.
Plexus Cotton Limited
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