ICE cotton futures rebounded, where will it go in the future?

Since November, ICE cotton futures have set off a rebound, with the main December contract rising sharply from 70.21 cents/lb to 89.31 cents/lb. However, after several attempts at …

Since November, ICE cotton futures have set off a rebound, with the main December contract rising sharply from 70.21 cents/lb to 89.31 cents/lb. However, after several attempts at 90 cents/lb failed, funds and bulls’ confidence It has weakened, and the long and short sides are in a stalemate and gaming at 85-90 cents/pound.

The market generally believes that U.S. inflation fell faster than expected in October, and the Fed will have more room to slow down the pace of interest rate hikes (U.S. CPI rose 7.7% year-on-year in October, lower than market expectations of 7.9% and 8.2% higher than the previous value) % fell sharply), triggering the U.S. stock market to experience its largest single-day rise in three years; coupled with the strong rebound in international precious metals, international oil prices, London base metals and other commodity futures, there is no reason for the ICE market not to continue its upward trend. Breaking 90 cents/pound. However, the rebound momentum of ICE on November 10 encountered a stubborn resistance from short sellers. Coupled with the negative factors such as the month-on-month decline in U.S. cotton signings last week, the negative USDA report, and the overall decline in Chicago agricultural products, ICE cotton futures ended in shock, and the main contract once fell during the session. Breaking the 85 cents/pound mark.

At present, the long and short sides of ICE have temporarily entered a weak balance state. On the one hand, the ON-CALL point price contract in early November has continued to decrease significantly. Buyers from China, Vietnam, Pakistan, India, Turkey and other countries have seized the opportunity to point prices to replenish raw materials while taking advantage of low prices. It is not conducive to the sales of US cotton in far-month contracts. According to CFTC statistics, as of November 4, 2022, the 2022/23 ON-CAll contracts on the ICE cotton futures disk have been reduced to 67,219, a decrease of 3,337 contracts from October 28, a decrease of 4.73%; on the other hand, some institutions, Cotton-related companies and speculators believe that the estimate of global cotton consumption in the USDA monthly report for 2022/23 is still significantly high, and subsequent reports need to be continuously corrected and revised.

So will the ICE market continue to consolidate at 80-90 cents/pound or will it open the “skylight” of 90 cents/pound? The author’s view is the latter, and the reasons are briefly summarized as follows:

First, cotton fundamentals are not bearish. Due to the upcoming tropical storm “Nikla” in the southeastern cotton region of the United States, the slow harvest progress in Texas and the southwest cotton region, and the western cotton region, and the cotton quality is worrying, India’s cotton production in 2022/23 may be significantly overestimated. The positive driving role of fundamentals such as Brazil’s production cuts cannot be ignored.

Second, the Federal Reserve will begin to slow down the pace of interest rate hikes. There is a high probability of a 50 basis point interest rate hike in December. U.S. stocks and commodity futures may continue their periodic rebound.

Third, Chinese buyers continue to sign large-scale contracts to purchase US cotton in 2022/23, which supports the ICE market. According to the USDA Export Weekly Report, since late October, Chinese buyers have continuously signed contracts to purchase U.S. cotton (accounting for 40%-60% of the total U.S. cotton contracts signed that week), and will no longer cancel early contracts.

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Author: clsrich