Commodities | Nov 03 2011
By Jonathan Barratt
Cotton has had a significant bounce from the lows and as we have had this on the radar for sometime it is important to keep everyone updated. Generally, cotton responds to economic news, production and consumption data; it is similar to copper where investors see its price action as a litmus test for the global economy.
The market has dropped from US 2.20 a pound in March 2011 to a low of US 0.9600 late October. This move has been on the back of better growing conditions in Brazil, Australia and a sizeable increase in production around the world this has helped to compensate the market for the disastrous effects of the Texas drought. Texas produces 50% of the US cotton and the US grows between 18 to 25% of the world’s cotton. This year US exports are expected to drop 20% with its lowest global trade share of 32% dropping to a decade low.
Globally, we can see an increase on exports of about 3% compared to the same period last year which suggests that domestic consumption remains strong. However the curve ball comes from China which used to be self sufficient in the cotton production verses consumption. China is currently the world's largest importer and consumer, its 2011/12 imports are forecast at 14 million bales, this is up 17% from last year and the second highest on record. In September imports were up 26%.
If you combined the increased demand from China and renewed optimism in the markets then we can suggest that we remain at important cross roads for the market. We continue to look for dips to accumulate.
Produced by Jonathan Barratt direct from the trading desks of Commodity Broking Services, Barratt's Bulletin provides expert analysis of commodity markets, global indices and foreign exchange movements. Click here to take a no obligation 21-day trial to Barratt's or to learn more visit www.barrattsbulletin.com. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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