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| Daily Jurogin - Tuesday, May 5, 2009 |
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Tuesday, May 5, 2009 CottonWhat our team at Jurojin Weekly has always loved about the open outcry commodity markets is the fact that they are so transparent, reacting to the reality of supply and demand. Cotton prices were no exception to the slump in world prices lately with trade coming to a virtual standstill as shoppers went on strike. And while there are signs that consumers remain stressed with incomes pressured as unemployment rises that remains a negative for the cotton market. The textile sector isn't one of the so-called 'green shoots' of recovery.Yet as last week closed, cotton prices futures trading in New York galloped to a six month peak. Prices opened strongly to start this week, closing at 56.82 cents per pound. That means that cotton futures have increased by at least one-third since the end of March. Thanks to lower planting intentions due to the weakness in textile manufacturing demand, farmers are looking at lower crops. But at the same time funds are looking at rising prices as wave after wave of fresh money enters each of the commodity markets. It's a pattern too difficult to overlook. What fund buyers are pondering is whether the textile market weakness is yesterday's story as investors buy assets across the equity arena and ditch the dollar making hard assets tomorrow's story. And faced with a revival in economic activity fanned by global government stimulus spending, it's hard to overlook the potential for a build-up in inflationary pressures somewhere down the line. Whether that turns out to be the case but from the sound of the buyers in the cotton pits again today, they can see fast bucks if they act quick! In Monday's Daily Jurojin we noted the strong demand for soybeans coupled with falling supply. The farmer's response to rising bean prices is to plant more soybeans, but of course that eats away at the supply of cotton - you can't plant beans and cotton at the same time! In the next crop year, farmers' have indicated that their intention to plant cotton will result in the lowest crop since 1983 according to USDA data. At the same time it expects a 10.5% demand decline to mark the largest reduction since records started 90 years ago. With concerns over arid conditions in the West Texas planting patch and planting season just two weeks away, fears for a bad start to an already meager harvest could quite easily provoke stockpiling, which would add further speculative buying of cotton. Rising prices to round off last week was met with an increase of around 2% in open interest, while call demand outpaced put option trading in Monday's session as more speculative money landed in the cotton patch. The Supreme Council of the Secret Order of Jurojin |
