Last week (April 10-16), there was a lot of fundamental and macro news about the cotton market, but neither the USDA report nor the US macroeconomic data gave a clear boost to the market. Nonetheless, with U.S. inflation data falling further, cotton prices appear to be recovering at a more solid pace. Over the past week, ICE cotton futures have experienced very little fluctuation, and overall have shown a slow upward trend.
Last week’s macroeconomic data generally played a supporting role in the market. Data show that the U.S. CPI increased by 0.1% month-on-month and 5% year-on-year in March. Although inflation is still continuing, the year-on-year increase is the lowest since May 2021. At the same time, the U.S. PPI fell by 0.5% month-on-month in March and rose 2.7% year-on-year. As inflation data continued to fall, the U.S. dollar index continued to fall that week. However, although U.S. retail sales slowed more than expected in March, the decline in core retail sales was less than market expectations, which strengthened the market’s expectations that the Federal Reserve will continue to raise interest rates in May. Therefore, although the macro situation has eased, it is not yet time to truly relax.
In the absence of more adverse news from the external market, cotton prices continue to explore the trigger points of seasonal trends. From the current point of view, the overall progress of US cotton planting is slow. Although there were scattered rainfalls in western Texas last week, the rainfall in most areas did not exceed 25 millimeters, which is of little help in alleviating the current severe drought. Weather forecasts show that the local temperature will remain high and rainfall will be low in the next 1-2 weeks. As time goes by, if there is still insufficient rainfall when the peak planting period arrives in May, it will have an adverse impact on US cotton production in the new year. In addition to Texas, excessive rainfall and flooding in the south-central and western regions of the United States may cause problems in cotton production and require attention.
On April 14, the Xinjiang cotton target price subsidy policy for 2023-2025 was finally released. The target price is still 18,600 yuan/ton, and Xinjiang cotton will be subsidized with a fixed output of 5.1 million tons. The timely release of the new policy will help stabilize the cotton planting area in Xinjiang in 2023, stabilize market expectations, and effectively boost market confidence. On April 17, Zheng cotton rose strongly, with the main CF2309 contract reaching a maximum of 15,170 yuan/ton, and ICE cotton futures also rose steadily. Although the target price is not directly related to the international market, and the external market itself does not have enough upward momentum, as the domestic market strengthens, the later trend will also receive more support.
Overall, the negative factors in the cotton market have faded since entering the second quarter. Although the market does not yet have the conditions for an upward breakthrough, some positive factors are gradually accumulating, and it is expected to maintain a more stable trend in the near future.
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