Since ICE cotton rose to 95 cents/pound on February 25, cotton prices have begun a downward journey. Although the positive USDA report in March only suspended the decline, the recent cotton seems to have only reacted to the negative. Strongly, for example, crude oil prices fell and U.S. bond yields increased. However, there was no response to bullish factors such as the U.S. 1.4 trillion stimulus plan and sales reports, and prices continued to fall.
Under market pressure, the US cotton planting report may become a bullish opportunity. According to an initial survey by the US Cotton Farmers Magazine, the intended cotton planting area in the United States in 2021 is 11.611 million acres, while the actual planting area last year was 12.185 million acres, a year-on-year decrease of 4.7%. It is estimated that 2.29 million acres will be planted in the southeastern region of the United States this year. Except for a small increase in Florida, other regions have decreased. The central and southern regions are expected to plant 1.685 million acres, and overall the area in each state will decrease.
On March 31, USDA will release a report on U.S. cotton planting area intentions. The USDA currently predicts that U.S. cotton planting area in 2021 will be 12 million acres, slightly lower than in 2020. But cotton industry insiders believe the sown area may be lower because of fierce competition from other crops and higher input costs for cotton cultivation. If the reported planting area decrease is within 2%, cotton prices are expected to change little. If it exceeds 4%, it will form significant support for cotton prices.
In addition, some clues can also be seen from the fund’s positions in cotton. Since ICE cotton hit a high of 95 cents, funds have begun to reduce their long positions in cotton. On February 23, the fund’s net long positions reached 97,000, when the closing price of ICE cotton was 92.58 cents/pound. Subsequently, the fund continued to reduce its long positions to 82,000, corresponding to the closing price of ICE cotton of 84.32 cents/pound. However, in the past two weeks, cotton prices have fallen sharply, and fund positions have changed little. On March 23, the fund held 82,000 net long orders.
The fund still holds a large number of long orders in cotton, indicating that it is still optimistic about cotton. The sales progress of U.S. cotton is similar to that of the same period in 2018. Before the expiration of the May contract, if funds take advantage of the shortage of spot goods and force traders to move positions or mark prices, futures prices may rise again. On the contrary, if the price cannot rise back above 85 cents after entering April, then the probability that ICE cotton will reach the high of 95 cents/pound in the first half of the year will be true. </p
