On July 20, after last week’s sharp decline, the cotton market tried to stabilize. At this stage, the market has to face tensions between China and the United States on the one hand, and a possible significant reduction in Texas production on the other.
As for Sino-US relations, China recently summoned the US ambassador to express strong protest against the US’s hysterical blame-shifting and accusations, but the first phase of the agreement is still being implemented. For Texas, the weather forecast shows that extreme high temperatures and dry weather will remain in western Texas. The market generally expects the seedling situation to continue to deteriorate last week.
The latest CFTC report shows that as of July 14, funds had net bought 8,300 lots, with net long positions reaching 29,817 lots. Non-commercial and non-reporting positions had net purchases of 7,200 lots, and net long positions rose to 44,455 lots.
On July 20, under the influence of dry and hot weather in most cotton-producing areas of the United States, ICE cotton futures rose sharply, and fund bulls contributed most of the buying. As Texas continues to experience extreme heat and almost no rainfall, the market expects Texas cotton production to be significantly reduced. Not only that, the southeastern region of the United States has also begun to enter high temperatures. The southern part of Georgia, the second largest cotton-producing state, has not had rainfall in the past two weeks, and the temperature has begun to approach 40 degrees.
Traders are very uneasy about this week’s U.S. cotton export data. Last week’s report showed that US cotton net contract signings were already net negative. Although it is understandable, China’s contract signings for the new year are only 38,000 bales. This may indicate that Sino-US relations are in a dangerous situation, and China may stop purchasing or even cancel some purchases. US cotton contract, in that case, no matter how the US cotton weather changes, the supply next year will be more than sufficient and it will be difficult to find buyers.
From the perspective of demand, at this stage, the procurement of textile mills around the world is “clear soup and little water”. The decline in profits of spinning mills forces them to try their best to reduce the cost of raw materials. The early market rise is all due to Chinese imports. Market participants believe that as China’s purchases gradually end, ICE futures may enter a downward channel. The new year will start in two weeks, and it remains to be seen whether demand can recover as scheduled. Regardless, cotton prices should be lower than current levels amid a sharp rise in ending stocks. </p
