Cotton price in sharp decline

Over the last two weeks the cotton price has collapsed by 10%, with most of the damage done in three trading days. The price has stabilized over the last week but one wonders whether buyers will come back in at the $83 level again.

The catalyst for the cotton price move has been the selling power of speculators following growing concerns that China is looking to end its current stockpiling policy. Like so many commodities, it is Chinese demand that drives the price, so the likelihood of Chinese imports cooling as they unwind the world’s biggest stockpile has sent shivers across markets. Historically, there is thinner natural demand during the Asian summer and so with the approaching winter months, a better ability to absorb this oversupply.

This shift in government policy would be a one-off event and could see US producers doing their own stockpiling to help prop up the cotton price and prevent the market becoming flooded with cheap supply.

As ever it is difficult to be 100% sure what the Chinese government will do, but if buyers don’t come into the market soon further technical levels could be broken with even lower lows set.

NY Cotton (Dec 13) chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.