Last week (November 8-12), cotton fundamentals remained as they always were. The anticipated USDA supply and demand forecast and US cotton export weekly report did not bring new guidance to the market. Instead, US inflation stole the show. That week, ICE futures hit a high under the influence of record inflation in October in the United States, and then gradually fell back. The main March contract rose by 2.5 cents in a week to 115.41 cents, and open interest increased by 1,766 lots to 285,975 lots.
Inflation has been talked about by the market for a long time, but it once again made the headlines last week. The October CPI index released by the U.S. Department of Labor increased by 6.2% year-on-year and 0.9% month-on-month, higher than market expectations of 0.6%. Excluding food and energy prices, which fluctuate violently, the core CPI index also rose by 0.6%, still higher than the 0.4% expected by the market. The annualized core inflation rate increased by 6.2%, much higher than the 4% expected by the market, hitting a record high in November 1990. highest level since last month.
Inflation is a double-edged sword. While pushing up commodity price levels, it also makes the market worry that the Federal Reserve will raise interest rates ahead of schedule. Driven by expectations of U.S. interest rate hikes, the U.S. dollar index rose to its highest level since July 2020 last week, limiting the room for cotton prices to rise. At present, the market’s biggest concern is the speed and extent of the Federal Reserve’s interest rate hikes. Considering that expectations of interest rate hikes have been in the market for a long time, its negative impact is slowly being digested in the market.
Last week’s US Department of Agriculture’s November supply and demand report was generally neutral, with no obvious positives or negatives. US cotton production and ending stocks increased slightly as scheduled, and global ending stocks increased slightly. decrease, so there is no change in cotton fundamentals. However, it is a fact that the United States has a bumper cotton harvest this year. Foreign countries generally believe that the U.S. cotton production forecast should continue to be raised to 18.5-19 million bales, higher than the current 18.2 million bales.
Judging from the situation in the past two weeks, ICE’s main March contract has been consolidating above 110 cents, while U.S. cotton exports have lost growth momentum, which shows that global textile mills are unwilling to Accept such high cotton prices. Regarding the high external prices, foreign analysts believe that while China’s cotton prices remain strong and the government continues to invest in cotton reserves, China’s cotton imports are unlikely to decrease by as much as 500,000 tons year-on-year. In addition, the frequency of high-level interactions between China and the United States has begun to increase recently. According to the latest official news, Chinese President Xi Jinping will have a video call with US President Biden on Tuesday (November 16). Judging from the previous contacts between the two parties, the market has responded positively. It should be said that the hope of improving Sino-US relations is also increasing.
After experiencing the setbacks of the epidemic, the consumption of cotton products in the United States is recovering rapidly. According to data from the U.S. Department of Commerce, U.S. clothing imports in September this year increased in volume and price for the first time since March last year compared with before the epidemic, and the value of U.S. clothing imports from China increased by 32.4% year-on-year. Compared with the same period in 2019, it dropped only 5.8%.
In view of the expected Chinese import demand and commodity inflation, it is unlikely that cotton prices will have a deep correction, and the tone of high prices will not change. </p
