Since mid-May, the main ICE cotton futures contract has rebounded from 79.52 cents/pound, breaking through 80 cents/pound, 82 cents/pound, 83 cents/pound and other integer marks (the intraday high of 83.97 on May 16 cents/pound), funds and bulls once again attacked the strong resistance level of 85 cents/pound (the first three attempts at 85 cents/pound since late March all failed), and the market’s bullish sentiment continued to recover.
An international cotton trader said that although many major cotton-producing areas in the United States have experienced rain recently, Texas benefited from sufficient rainfall and the moisture situation has improved significantly compared with the previous week. The sowing progress has accelerated and the USDA has increased the US cotton production in 2023/24 by 100%. At the same time as 10,000 bales, the global cotton supply has also increased significantly, but the rebound momentum of ICE is still relatively strong, and the short sellers have retreated to the 85 cents/pound line. It is expected that as funds accelerate the transfer of positions to December, U.S. cotton contracted exports continue to strengthen, and the El Niño phenomenon will have an increasing impact on various cotton regions in Southeast Asia in 2023, the shock range of the December contract will most likely move up to 85-90 cents/pound. .
Why continue to be bullish on ICE futures? The author summarizes the following four points:
First, the probability that the Federal Reserve will press the “pause button” on interest rate hikes in June has increased significantly, which will be positive for the stock market and commodity futures market after a period of calm. The U.S. CPI rose by 4.9% year-on-year in April, the 10th consecutive decline, reinforcing the Federal Reserve’s plan to suspend interest rate increases; and the tightening of credit conditions caused by turmoil in the banking industry has also made the Federal Reserve more cautious in raising interest rates.
Second, cotton consumption demand in China, India, Pakistan, Bangladesh and other countries will continue to recover in 2023, supporting the rise of ICE. The USDA’s May cotton supply and demand forecast predicts that global cotton consumption will increase by 6% in 2023/24. In particular, as Pakistan and Bangladesh ease the foreign exchange reserve crisis and Turkish textile companies accelerate the resumption of work and production after the earthquake, cotton demand is expected to rebound rapidly. .
The third is to pay attention to the impact of the El Niño phenomenon on various cotton-producing areas from May to September 2023. The U.S. Climate Prediction Center (CPC) announced that the probability of El Niño (Pacific Warm Period) occurring in August this year is more than 90%; on May 3, the World Meteorological Organization (WMO) announced that the possibility of El Niño occurring from July to September this year The probability is 80%, and there is a 60% probability that it will occur from May to July. Asia is facing the “baking” experience of super high temperatures, and India and Pakistan are the countries most susceptible to high temperatures. Therefore, cotton sowing and growing Output may even be greatly affected.
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