In recent trading days, the main contract of ICE cotton futures has continued to consolidate around 80 cents/pound, mainly due to the wide adjustment of the US dollar index, the “twisting and twists and turns” of the recovery of global cotton consumption, the uncertainty of the Fed’s interest rate hike, the weather and weather conditions in the main US cotton producing areas. Affected by changes in the growth situation and other external market factors, both bulls and bears are waiting for direction guidance.
Judging from feedback from several international cotton merchants and large cotton companies, after the main ICE contract fell below 80 cents/pound and 79 cents/pound, buyers from China, Vietnam, Turkey, Pakistan and other countries made inquiries/placed firm orders. The enthusiasm of the market has recovered, providing support for the ICE market to stop falling and rebound; after ICE’s main contract exceeded 81 cents/pound and 82 cents/pound, buyers fled one after another, and the trading volume of bonded cotton and ship cargo dropped significantly. Traders’ blind price support and reluctance to sell also suppressed the rebound of ICE.
Some institutions and cotton-related companies judge that the short-term ICE market will still consolidate around the key point of 80 cents/pound, with long and short stalemates, and the trend is difficult to make clear. However, the author recommends that domestic cotton textile companies and traders consider trading at 80 cents/lb in the main contract. Gradually buy US cotton with shipping dates from January to March 2024 and Brazilian cotton with shipping dates from September to December 2023 (new cotton in 2022/23) at the price of cents/pound, locking in mid- to high-quality cotton resources and lint cotton in advance for 2023/24 We will vigorously prepare for export traceability orders this year, and it is not appropriate to chase short positions and sell down. The reasons can be briefly summarized as follows:
First, the number of speculative net long orders in ICE cotton futures in early July increased significantly compared with the previous week, and funds entered the market in advance; second, the El Niño phenomenon caused great uncertainty in the cotton planting area in India in 2023. As of June 23, India’s new cotton planting area reached 2.8 million hectares, lagging behind by about 12% year-on-year. The variables for the market outlook are the actual planting area and weather; from July to September, most cotton areas around the world may encounter extreme weather such as high temperature and drought. For areas with water shortages, the ability to irrigate and replenish water in a timely manner has also become the key to yield and output; third, whether the Black Sea Grain Export Agreement can continue to be implemented has become the focus of attention of all parties. As the deadline approaches (July 17), the fate of the agricultural export agreement from the Black Sea ports remains uncertain. The Russian Foreign Ministry stated on July 4 that Russia saw no reason to continue extending the Black Sea Grain Export Agreement, which will expire in two weeks. Obviously, once the Black Sea Port Agricultural Products Export Agreement is cancelled, global food prices may rise sharply again, which will drive cotton futures to rise in response; fourth, it is gradually becoming an industry consensus that domestic cotton prices will run at a high level in 2023/24, with prices in June and July Entering the market on the premise that domestic and foreign cotton prices exceed 1,000 yuan/ton in March will help large and medium-sized cotton-related enterprises to lock in foreign cotton resources such as Brazilian cotton and American cotton in advance, so as to achieve the purpose of reducing costs and improving export competitiveness of textile enterprises; fifthly, ICE Cotton futures’ near-month and far-month contracts are flat or inverted, which is beneficial for buyers to sign contracts for 2023/24 cotton. Unlike the global cotton market in 2023/24, which is expected to have “production exceeds demand and supply exceeds demand” and where cotton prices rebound or mainly fluctuate repeatedly, the current trend of domestic cotton futures is more likely to deviate from ICE for a long time, and the ICE market is upside down. Hedging opportunities for cotton companies.
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