Cotton market sees mixed reaction

18 Jun '10

5 min read

We therefore expect the US crop estimate to be raised considerably over the coming months. The USDA currently carries a 16.7 million bales number, but we feel that the US crop has the potential to produce 18.5 to 19.0 million bales. Not only is the planted acreage higher by some 0.2 to 0.3 million acres, but abandonment is much below average at this point and the yield potential for Upland cotton is definitely much higher than 806 pounds.

So where do we go from here? July is basically history and whatever happens from here on will only have a limited impact on the overall market due to the small open interest. The action is now clearly in December, which is struggling to take out the 80 cents resistance level due to heavy grower selling. Unless speculators are willing to throw a lot of money at the long side to overcome all this trade selling, December is likely to retreat from current levels due to the size of the US crop.

Although this may be the fifth season in a row in which world production falls short of consumption, we need to be mindful of the seasonal tendencies. In a couple of months from now new crop becomes available, which will allow the supply pipeline to fill up again. Also, prominent import markets like China, Turkey or Pakistan will have their own crops to feed on, while the US is going to deal with a much larger crop that it has to carry without help from the government. Given the fairly high price level we are currently at, we expect to see some price pressure between November and April, before renewed tightness towards the end of the 2010/11 season will once again act in support of firmer prices.

Plexus Cotton Limited

More Textiles News - United States Of America...