Since January 20, after the main contract of ICE almost exceeded 125 cents/pound, it has fluctuated and pulled back for three consecutive trading days. The long and short sides have returned to the 120 cents/pound mark and have repeatedly stalemate and compete.
Why did ICE futures peak and fall in the short term? The author analyzes the following reasons:
First, the tension between Russia and Ukraine not only severely hit the Russian financial market, but also caused huge earthquakes in European and U.S. stocks. The Dow Jones Industrial Average fell more than a thousand points during the session, and the commodity futures market fell back in response; second, the selling wave of risk assets continued to put pressure on and early oil prices. The oversurge has suddenly increased the pressure for crude oil to fall back. On January 25, crude oil futures on the New York Mercantile Exchange and ICE European Futures Exchange both hit new lows in more than a week. Third, from the 25th to the 26th, the Federal Reserve held its January interest rate meeting. Institutions, Speculators’ concerns about the Federal Reserve opening the door to raise interest rates in March have increased, and risk-aversion operations have increased; fourth, rain and snow have recently fallen in the southwestern and western cotton regions of the United States, and soil moisture has improved. In 2022, the cotton planting area in the United States will increase significantly. expectations have increased again.
Despite this, some international cotton merchants and institutions still judge that the magnitude and intensity of the ICE pullback will be relatively limited. After a short period of consolidation and accumulation, the motivation to open the 125 cents/pound resistance level still exists. Therefore, despite the ICE pullback, trading merchant ships The basis difference of commodities, bonded cotton, etc. remains stable, and most of them have not been adjusted. It is not uncommon to be reluctant to sell or hold back the market.
It is reported that some large cotton companies are stepping up their purchases from small and medium-sized processing companies and middlemen to increase their stockpiles. On the one hand, since 2021/22, textile and clothing orders have been strong in Southeast Asian countries such as Bangladesh, Pakistan, and Vietnam, and the demand for U.S. cotton imports has grown rapidly (Bangladesh may have a cotton shortage in the first half of 2022). In addition, China’s 894,000 tons of 1% tariff Cotton import quotas have been gradually issued to cotton textile mills and import companies. Therefore, strong US cotton sales in 2021/22 and 2022/23 will provide great support to ICE. On the other hand, the Fed’s interest rate hike expectations have been digested for more than a month. “Swan” has become a “white swan”, and various institutions and speculators are waiting for the “boots to hit the ground”. Once the news is clear, it may mean that the opportunity for commodity futures to run out of negative news and rebound begins. Furthermore, due to the serious slowness of the launch of Indian seed cotton, CCI’s lack of effective means to increase supply, Modi’s policy that does not plan to revoke the 10% tariff on imported cotton, and the decline in India’s cotton planting area intentions in 2022, India’s domestic cotton The contradiction between supply and demand is very sharp and prominent, which has contributed to the rebound of ICE.
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