According to feedback from several international cotton merchants and importing companies, as ICE cotton futures broke through again last Friday, not only did the ON-CALL price contract transactions speed up significantly compared with January and February, but Chinese cotton textile mills, traders, etc. The enthusiasm for inquiry/purchase of shipments of Brazilian cotton, US cotton, West African cotton and other cargoes in Yuanyue has rebounded.
According to industry analysis, on the one hand, as ICE futures contracts have fallen sharply, the price difference between the direct import costs of U.S. cotton, Brazilian cotton, Australian cotton, etc. and the Xinjiang cotton spot under the 1% tariff continues to expand, and the competitiveness of high-quality foreign cotton has increased; on the other hand, The “inversion” range between the main ICE cotton futures contract and the December contract has narrowed from 18.5-19.5 cents/pound in the previous period to 15-16 cents/pound. The far-month contract has shown strong resilience and has returned to normal. Conditions and dynamics of basis.
So as the main contract of ICE approaches 115 cents/pound, should Chinese cotton traders and cotton textile companies holding import quotas sign large quantities of contracts to purchase US cotton and Brazilian cotton in 2021/22? The author believes that the risk of entering the market in batches near the 115 cents/pound mark for ICE’s main contract is not high. 110-115 cents/pound for the box may be an opportunity to expand the contract volume. Below 110 cents/pound is a safe zone. Beware of “empty” market conditions. The reasons include the following points:
First, the Federal Reserve’s March interest rate meeting may raise interest rates by 25 basis points. Not only has the negative impact been diluted and digested, but the rate of increase is lower than the 50 basis points previously expected by all parties. The impact on global finance and commodity futures markets has quickly faded. Secondly, due to the continued lack of effective precipitation in the western and southwestern cotton areas of the United States, drought has led to poor soil moisture, and the abandonment rate is expected to increase compared with the previous two years; while the low temperature in the central and southern cotton areas has lingered for a long time, coupled with the impact of Russia Affected by the conflict in Ukraine, international wheat prices have increased by 40.62% in the past week, corn prices have increased by 14.72%, soybean prices have increased by 4.64%, and Chicago rice prices have increased by 7.47%. Farmers’ enthusiasm for growing grain has rebounded significantly from the previous two months. The growth rate of cotton planting area in the United States, India and other countries in 2022 may be seriously overestimated; thirdly, considering that the U.S. government has implemented a broad ban on the import of Xinjiang-related products and the quotations of cotton yarn from India, Pakistan and other origins are still obviously inverted with domestic yarn, so bargain hunting Signing contracts for foreign cotton with far-month shipping schedules is conducive to export-oriented cotton textile and clothing companies to receive orders and avoid risks.
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