The current cotton season is certainly lively and will likely go down in the annals of history as a combination of varying factors have confused many market analysts.
The end of last week confirmed the uncertainty in the market as well as the volatility of commodities.
However, it all started with encouraging news.
- In India, the CCI continues to sell off their large stocks in good quantities to both local spinning mills and traders. The size of the crop in India has come under much scrutiny with some believing that it will be reduced.
- A figure of 33/34 million bales seems to be a more realistic figure than the 37 million that had been projected at the beginning of their season.
- China's new demand for Indian cotton is also an interesting element, as it could allow for a strengthening of the basis of this cotton, which remains among the cheapest on the market.
We should also not forget a surprisingly large sales figure announced by the USDA, though with some contract cancellations most notably from Bangladesh.
Then on Thursday ICE collapsed, seeing a limit down move in one session.
Such a decline on the market was perhaps more technical than anything else:
A decision by hedge funds to close out their positions and take their profits.
Or it might be seen as the market taking a breather from an overbought position. The market had closed up daily for nearly two weeks in a row, and such a breather was perhaps overdue.
However, the return of the spinning mills to the market on a more regular basis, should allow the market to stabilise, before resuming its forward march. If the new Indian crop statistics are confirmed, then the $1 / lb level will be just one step in the progression of prices.
New crop US could also under some pressure due to the vagaries of the weather. After an exceptionally harsh winter, particularly in Texas, the drought is beginning to worry many American producers.
Although planting cotton for the next season is financially profitable, it should be remembered that other agricultural products such as corn, soya and wheat are equally as profitable if not more so.
In the current market, the return of inflation is no longer an option but a reality. Under the impetus of speculative funds, it should also drive up the price of raw materials.
Despite the recent moves in the market leading to some suggestions that the market is now in correction, we believe that actually cotton should resume its continued march upwards.
Πηγή: Mambo