NY cotton futures continues to slip

10 Nov '12

5 min read

Although the US is not facing much competition from foreign competitors at the moment, there is still the possibility that a bigger than expected US crop could lead to internal price pressure. Most observes see the US crop in the 17.4-17.8 million bales range, with an outside chance to make 18 million bales thanks to record yields in parts of the Southeast. With export sales at only 6.6 million bales at this point and with domestic mill use at just 3.5 million bales, the US may still have some 11 million bales for sale. Placing all that cotton could prove to be a tall order unless China continues to be unexpectedly active on the import front.

So where do we go from here? At the moment NY futures still represent about ‘fair value’ near 70 cents, based on where physical cotton is being traded in the Far East. As long as export demand is maintained, the market should not move much from current levels. However, with the US crop coming in fast and furious after benefitting from several weeks of good harvest weather, daily classings of some 200-250k bales are now outpacing demand and this could lead to some price pressure as inventories start building up over the coming weeks.

Tomorrow’s USDA report will likely set the stage for the market’s next move. We are looking for a higher US crop number, which may be offset by a drop in Pakistan. Consumption is already low enough, so no need to make it even more depressing.

Surprises could come in the form of higher Chinese imports and a sharp downward revision in Indian stocks going back several seasons, which would lower global ending stocks. At any rate, we expect the market to come alive tomorrow after several days of listless trading!

Plexus Cotton Limited

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