Three reasons why Greek basis is resisting correction.
Harvest all over Greece is getting close to its end, while ginning mills are operating at high capacity since they are full of seed cotton. Quantity of lint is estimated to reach the 270k tons and despite the lack of serious big sales, basis refuses to correct.
In our opinion three are the main reasons that justify this situation.
1. Demand on a large scale is slow, however during the week several new small sales were reported when the market was testing the 69-70’s between 77-78,50 usc/lb FOT. Egyptian market and few Turkish buyers are supporting our prices, maintaining the basis at levels of 750-900 on Dec 17. Meantime merchants are focused on selling their position rather than increasing it.
2. We estimate production at 270k tons of lint this season which is higher from the previous one, but at the same time sales so far are about 100k tons. This means that at the first month of ginning season, close to 40% of the crop is already committed. Provided we get increased demand from Turkey in November we may result to very few stocks by the end of the year.
3. It looks very hard for ginners to pay lower prices to growers due to increased competition. The 0.50 eur/kgs net to the grower that were reported in Thessaly area in the beginning of the season will hardly break to the downside.
Someone would expect that this resistance would not last forever, since at a certain moment the pressure of unsold quantities & financing would bend resistance. However, past experience shows that traditional buyers of Greek cotton sooner or later will emerge. It is very likely that once again the demand will get stronger before the selling pressure appears.
Kind regards, Yiannis Papadogiannis