Medium term
Trade view / 27 May 2016 at 9:06 GMT

A glimmer of optimism for cotton

Managing Partner / Spotlight Group
United Kingdom
Instrument: CTN6
Price target:
Market price:

There is a growing sense that New York cotton prices will be standing at approximately US cents 70/lb in a year's time. That would be a gain of 8.5% over the current shape of the futures curve.

New out of China is that there will be a reduction in the level of cotton purchases by mills from China's state stocks because the quality of the offerings has been in decline for three months now and has reached a tipping point.

The textile mills are finding they are having trouble running some of those state stock bales and they have had to run them in tougher fabric such as yarn. However, apparel manufacturers are dissatisfied as there are too many problems and too much contamination.

Therefore, there should be scope for an uptick in Chinese imports as alternative sources are tapped. This should be sufficient is size and scope for cotton to break above the upper limit of its two year, slow corrective channel.

On top of this one is starting to feel the impact of the 10% decline in US cotton from 2014’s 11.01 million acres. Bloomberg put planting at 9.7 million acres, while Informa Economics is looking at 9.4 million acres.

 Source: Spotlight Ideas 

Management and risk:

Parameters: Cotton US cents/lb  CTN6  
Entry: Buy at 64.50 (0723 GMT)
Targets: 65.00 … 66.37 … 67.51 … 68.43
Stop: 60.50
Time horizon: Medium term

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more


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