Market Comments – December 8, 2016

The irony is that by being bearish and therefore buying almost all cotton ‘on-call’ in recent months, mills have created a potentially bullish monster! There are now nearly 10 million bales that have been bought but not priced yet and this represents a tremendous amount of buying power. The hope is of course that the specs will oblige and eventually sell out of their 11 million bales net long position, which would allow mills to fix in a falling market. But what if speculators were to sit tight?

Market Comments – December 1, 2016

Both from a fundamental and a technical point of view the market seems to be ready for a much-anticipated correction. However, we feel that a dip towards 68/69 cents would be met by aggressive trade short covering and may therefore be short-lived.  We don’t see a major flush out of spec longs at this time and feel that the trade is in a weaker position with all its unfixed on-call sales.

Market Comments – November 24, 2016

With December fixations out of the way, the market seems to be ready for a pullback. However, there is plenty of trade buying to be done and for this reason we feel that the market doesn’t have a lot of room to the downside, unless spec longs were to pull out of their positions. We therefore feel that a pullback towards 68/69 cents would have a lot of support and should be bought!

Market Comments – November 3, 2016

While from a fundamental point of view a continuation of the 67-72 cents trading range still makes sense for all the reasons we have already discussed, macro events could exert their influence on cotton over the next week or two. We therefore believe that it makes sense to take some risk off the table and adopt a wait and see attitude next week.

Market Comments – September 22, 2016

The market has quickly moved to the higher end of our perceived 66-71 cents trading range and it remains to be seen whether it can keep the momentum going. What speaks against it is that specs are already quite long, while the trade doesn’t seem to panic into covering shorts. The crops in China, India, Pakistan and the US are doing fairly well at this point and as long as that remains the case, we don’t see any reason for the trade to chase prices higher. 

Market Comments – September 15, 2016

The CFTC report of last week showed that the recent price spike was mainly due to spec short covering rather than new spec buying.  Specs are already 8.3 million bales net long and therefore don’t have as much firepower to force the market higher. Even if speculators were to buy another 3-4 million bales net, grower selling would probably be there to absorb it now that the crops are about to move in.

Market Comments – September 8, 2016

As mentioned last week, we believe that support underneath the market is rather solid at around 66-67 cents, due to the 6.99 million bales in unfixed on-call sales and pent-up demand for nearby shipment. Resistance is more difficult to ascertain, but we feel that at 71/72 cents the market will start to struggle from a fundamental point of view, unless there are some last minute setbacks on the supply side.

Market Comments – August 25, 2016

Speculators still have a considerable long position of over 7 million bales net, but the trade is twice as many bales net short. Index Funds, which are just under 7 million bales net long, are not reacting to price movements.  It is therefore a question of ‘who has more urgency to act’? Specs longs are at or below their break-even point and may want to further reduce their exposure. However, unless they do so in a hurried manner, there seems to be enough trade buying to absorb any selling at the moment.

Market Comments – August 11, 2016

Spec longs got the wind knocked out of them over the last few sessions and are now hoping for the WASDE report and mill fixations to keep the market from caving in further. However, with the weather situation improving, a trade short covering rally is less and less likely, which could leave the nearly 10 million net spec longs exposed.