NY futures continued to move higher for a fifth straight week, with December gaining 202 points to close at 64.87 cents and December'08 moving up 165 points to close at 73.50 cents.
When December traded at Wednesday's high of 66.25 cents, it marked a rally of nearly 10 cents from its recent low on August 27, whereof 6 cents came in just the last eight sessions.
This kind of pace is difficult to sustain and from a technical point of view the market was clearly 'overbought' and ready for a correction to blow off some steam, which is exactly what happened when it sold off yesterday and in the early hours of today's session. But the weakness was short-lived as specs were ready to buy the dip and the market claimed back nearly all of its losses from the day before.
By simply looking at the price relationships in the cash market one can easily argue that US cotton, and in particular the NY futures market, are severely overvalued compared to what foreign growths, such as Indian and West African, are currently selling for.
Many traders therefore believe that it is just a matter of a few more weeks before harvest pressure will force the futures market down, as otherwise a substantial amount of physical cotton might find its way to the certificated stock and weigh on the market, similar to what happened last season.
Take the March contract for example, which closed today at 67.74 cents. If we add the current quality premium for a 31-3-35 of 310 points, March pays 70.84 cents FOT certified warehouse for February delivery and payment, which is a much better price than the 68-69 cents that Indian and West African are currently selling for basis CIF Far East.
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Telangana State Industrial Infrastructure Corporation Limited (TSllC Ltd)")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Taiwan Textile Federation (TTF)")
