In the last week of July, under the influence of negative macro news and continued supply concerns caused by the weather in the United States, ICE cotton futures ended the week of trading with five consecutive gains. As of July 31, the main ICE futures December contract closed at 96.74 cents, while the main contract at the end of last year was also around 90 cents. After a crazy year, cotton prices are back to where they started.
From a historical perspective, July to September every year is often the period when the market bottoms out and stabilizes. The new year has begun, how will cotton perform this time? In the past week, as the Federal Reserve released dovish remarks that “the intensity of interest rate hikes may be weakened in the future,” the nervousness in the financial market has significantly weakened, the large-scale sell-off has come to an end, and many commodities have turned around and risen. Under the influence of the gradual recovery of the external market and the increasing concerns about the supply of new cotton in the United States, cotton prices have continued to stabilize and rebound, and the role of fundamentals has begun to appear.
According to the latest weather forecast, most areas of Texas in the United States have maintained extreme and unprecedented drought conditions recently, and drought has also begun to occur in the Delta region. Foreign analysts believe that based on the current weather conditions, the final output of U.S. cotton this year is likely to be about 1 million bales lower than the current forecast of 15.5 million bales. The output in Texas may only be 4-4.5 million bales, which will make the U.S. Fundamentals are further tightening. Regarding U.S. cotton demand, the cancellation of U.S. cotton contracts in recent weeks has not been serious, and there have been no large-scale breaches of contracts. U.S. cotton supply and demand still seem to be able to provide support for the market.
Cotton has the potential to continue to recover slightly before the new year’s output is settled. After hitting a low of 82 cents, cotton prices have rebounded by about 15 cents overall. The rebound is not small, but the general trend has not really reversed. Although the inflationary bubble and rising cotton prices have been squeezed out, downstream consumption is far from back on track so far. Even after cotton prices fell sharply, purchases by textile mills remain weak. Faced with the continued shortage of orders, high-priced raw material inventories that are difficult to digest, and high production costs, factories can only repeatedly lower their operating rates and keep raw materials and product inventories as low as possible. For most companies, this situation may continue for a long time. .
Since the second quarter of 2022, cotton textiles, cotton products and apparel in countries including China, India, Pakistan and other countries have fallen into the dilemma of inverted production and sales, weak new orders, cotton consumption has obviously peaked and fallen, and demand has declined. Not only China, but also buyers from India, Turkey, Vietnam, Indonesia, Pakistan and other countries are less willing to implement the 2021/22 US cotton contract. The cancellation of early high-priced contracts may become the focus of the recent game between buyers and sellers. After supply concerns, consumption will determine the true direction of cotton prices. Regarding this point, at present, the situation will not be very optimistic at least within this year.
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