Under the influence of factors such as the USDA’s latest report, which significantly lowered the 2022/23 US cotton production and ending stocks, various Chicago grain varieties, and the probability of the Federal Reserve’s radical interest rate hike in September, which will significantly decrease, August 12 and August 15 Each contract of ICE cotton futures has hit the daily limit for two consecutive times. The main market price in December has broken through 100 cents/pound, 105 cents/pound, and 110 cents/pound. With such a sharp and violent rise at the beginning of the new year, funds and bulls can be described as menacing. .
As the main ICE contract exceeded 110 cents/pound, the focus of the industry and the market turned to exploring the “high limit” of this round of ICE futures rebound. From a historical perspective, this year’s situation is very similar to that of 2011, but the 115 cents/pound that year obviously cannot become the “ceiling” for this round of ICE rebound. The author judges that after the market breaks through 115 cents/pound, the next target will be the high of 121.67 cents/pound during the 2021/22 seed cotton purchase period. The long and short sides may start a fierce battle near 120 cents/pound. The main ones are as follows. Several reasons:
First, most cotton areas in the United States have experienced increased rainfall since early August, the drought has been alleviated, and cotton growth has accelerated overall. The decrease in U.S. cotton production in 2022/23 is suspected of being over-hyped.
Second, as the Chicago grain futures correction pressure increases. More ships are setting sail from Ukraine to transport grain exports to global markets under an agreement with Russia to lift obstacles to Ukraine’s seaborne grain exports; forecasts of rain and low temperatures in the U.S. Midwest are also weighing on corn and soybean futures. The rebound momentum of agricultural products will be suppressed.
Third, Chinese buyers have been reluctant to take action, and the contracted export of US cotton in 2022/23 will provide limited support to ICE. From a statistical point of view, since mid-June, Chinese companies have not signed a “big deal” for US cotton in 2022/23 for seven consecutive weeks, and US cotton trading volume has also been significantly lower than expected.
Fourth, the Federal Reserve’s aggressive interest rate hikes and tightening of monetary policy have caused a rapid decline in global cotton textile and clothing consumption and an intensification of the energy crisis. So far, not only have the number of new orders received by textile and clothing companies in China, India, Pakistan, Vietnam and other countries continued to decline, but Bangladesh, which was previously a “single-out” exporter, has also begun to decline. Therefore, the decline in global cotton consumption may completely make up for the reduction in U.S. cotton production.
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