Below is the chart which tries to capture the price normalization of cotton in the range of ₹17,770 per bale (170 kgs) to ₹ 24,160 per bale for the long period of 5 years. A mere spike to the level of 25,000 was a sin to put rest upon. With Price almost exponentially doubling with no time to all the level of ₹ 50,000 per bale in late 2020. Traders of any instrument must be able to capture the name of price theory to make a more concerned decision. However the fallacy is that- the more they get concerned about price behavior, the greater be the aggravation & intensity of price behaviors- Both Rise & Fall. Ultimately, the market forces must be able to ping down the prices of normal averages. Convergence of Cotton price to so called normal level is akin to any trad-able commodity in the world.
Cotton & Demand
If we look on the demand of cotton, it fails onto justify that its price rise cannot be stopped- Yes It Can !
Some of the points which argues this theory of price limitations
- Seasonal Usage
- Limited Functionality of Cotton Yarn vis-a-vis Polyester
- Limited Longevity, Shelf Life
Above points may not be exhaustive, but are enough to argue that – whatever is the temporal heat in the rise of cotton prices, there would be price convergence & normalization.
Future Price Estimation of Cotton
The prices of cotton is yet to travel the long distance to ₹ 26,420 – which is the 200 EMA (as shown in below chart). The travel to that level would be much more liquidity exhausting- simple reason is the standing bets would only take its hand off the table if the price breaks below the level of ₹ 40,000 per bale. As soon as a trigger of Winter Season sets in motion this might not be as difficult to achieve.