Influence of unsettled financial markets on cotton trade
07 May '10
5 min read
Cotton related news took a backseat this week, but it is worth reporting that US export sales continued at a decent pace despite the higher market level last week, as a combined 285'200 running bales of Upland and Pima were sold for the current and next marketing year. This brings total commitments for this season to 11.5 million statistical bales and there are now 0.9 million bales on the books for August onwards shipment.
New crop plantings are progressing fairly well despite an occasional setback here and there. On balance we believe that the odds favor above average yields next season thanks to the cold and wet winter we had all over the Northern Hemisphere. If we are correct and the market starts to discount higher crop numbers, it will most likely put some pressure on December. From a seasonal point of view we are entering a period where producers will want to forward price some of their planted crops at these high levels, while mills will resist buying more than they absolutely need to. This should tip the scales towards the bearish side, especially if speculators lose their appetite for commodity investments for the time being.
So where do we go from here? The financial markets may have overreacted this week, but speculators will probably play it safe and continue to cut their positions. However, the trade will still have to buy a large amount of July shorts back over the next six weeks, which will guarantee that there is a constant bid under the market. We therefore expect a range-bound market over the coming weeks, with most of the action probably taking place between 79 and 83 cents. Traders need to stay keenly alert to changes on the financial front, which may alter the current balance of power between specs and the trade.
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