Since mid-September, ICE futures prices have experienced a certain degree of correction, and the price fluctuation range has narrowed. The December contract only closed with a small positive line last Friday (September 25), ending the week. Weakness fell.
At present, when the global COVID-19 epidemic strikes again and new cotton in the northern hemisphere is about to be launched in large quantities, the consensus view is that cotton prices may be under greater pressure, and sufficient external factors are needed to drive the continued upward trend. Historically over the past few years, prices have typically hit year-round lows around Thanksgiving.
The author analyzes that the biggest driving force of the market currently (it should be said starting from April) is the recovery of demand after the epidemic. A second wave of infections in Europe and the United States has rattled financial markets in recent weeks, but at the same time vaccine trials are getting closer. Although there is still a long time before the real recovery, maybe 3-6 months, or even longer, as long as there is a long-term positive trend, ICE futures will respond to it in advance, so by the end of the first quarter of next year , the market is likely to start to move towards a positive trend.
Affected by the epidemic, upstream and downstream inventory replenishment has not been active in the past six months or so, and terminal demand still needs to be released urgently, resulting in a fairly empty inventory in circulation channels. In the past month or two, the Indian and Pakistani textile markets have fully recovered, and orders from various countries have improved significantly, which means that cotton yarn prices will slowly be supported. Compared with half a year ago, cotton and cotton yarn inventories in various countries currently remain low. Once downstream demand shows signs of recovery, it is likely to trigger a wave of strong replenishment behavior. This risk must be guarded against.
Recently, the cotton-producing areas of the United States have encountered a series of hurricanes and tropical storms. Although they have not caused a big wave in the market, the successive rains in September have given rise to new cotton growth in many cotton-producing states. It will have a negative impact, and the market needs to beware of widespread damage to US cotton yields and quality, which may be reflected in the USDA supply and demand forecast, US cotton seedling status report and US cotton inspection report. One thing that needs to be noted is that as long-term rains may lead to reduced quality and production of U.S. cotton and China continues to sign a large number of U.S. cotton contracts, if U.S. cotton shipments keep up with the pace of contract signings, the actual supply of high-grade U.S. cotton may decline in the future. At a significant discount, U.S. cotton inventories may become tight, while at the same time U.S. cotton production and export supply also tend to decrease. With the recovery of textile production in Asian consumer countries, the demand for US cotton in various countries will continue to expand in the future. For example, Pakistan’s cotton has repeated the same mistake as last year, with another significant reduction in production.
The article “Frequent Bad Weather, Northern Hemisphere New Cotton Output Lower than Expected” published by China Cotton Network on September 23 mentioned that the output of major cotton-producing countries was lower than expected. Recent news shows that the lingering monsoon rains in India have also brought problems to the quality and harvest of new cotton. It is unknown whether it will continue to escalate and evolve into a bigger event in the future. The market still needs to take precautions against this. According to foreign media reports, although the current La Niña climate is beneficial to Australian cotton production, it is detrimental to cotton production in other parts of the northern and southern hemispheres. There have been reports that drought concerns in Brazil’s cotton-producing areas have begun to rise, and the country’s cotton next season Planting is coming soon, and Brazil will continue to have hot and dry weather in the next half month.
Finally, we need to look at food crops other than cotton. Prices for competing crops have been strong, and while China’s grain imports hit record levels, domestic prices for corn and oilseeds have risen rapidly and have been unaffected by the massive imports. The global food crisis caused by the epidemic is another major support for the rise in cotton prices. Cotton farmers in Brazil, the United States and Australia have begun to consider planting more food crops such as sorghum, corn, and rice.
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