NYK futures slightly down since last report on Sept 7
22 Sep '06
3 min read
Even though the latest USDA report of September 12 continues to suggest a global production shortfall of 7.3 mio bales in the current season, the slow pace of business seems to be at odds with the USDA numbers.
Of particular concern is that China, the world's largest consumer and importer, has been missing in action in recent months and is not showing any sense of urgency to buy cotton, despite the fact that its mills are running on very low inventories.
With the trade playing it safe due to the uncertainty regarding China, speculators have once again taken control of the market. Since the beginning of August, speculators have sold over 3.0 mio bales net and are currently holding a 0.8 mio bale (4.3 percent) net short position.
Coming back to the statistical situation, the USDA currently predicts a production shortfall of 22.3 million bales outside the United States.
Even if China was to consume 3 or 4 million bales less, as is generally believed, it would still leave a significant gap between production and consumption outside the US. This shortfall can only be made up by reducing existing inventories and/or by importing US cotton.
Nevertheless, China will sooner or later have to import around 3.5 to 4.0 mio tons and most of that cotton will have to be supplied by the US. Until that happens, the majority of US cotton will be parked in the government loan.
With China holding back as an importer and with US cotton assuming the role of residual supplier, the export market is likely to remain a rather dull affair in the near future.
marketing@alchempro.com
