Since November 1, ICE cotton futures have rebounded strongly, with the main contract staying at the daily limit for three consecutive trading days (rising from a two-year low of 70.21 cents/pound to 83.89 cents/pound, an increase of 19.48%). At a time when interest rates continue to be raised vigorously, economic recession is expected to intensify, and the consumption situation is not good, the unusual performance of cotton prices has made many people feel a little confused.
A large cotton trader in Jiangsu said that the fund’s “short-selling” strategy since October has been successful. According to CFTC statistics, as of October 25, the long ratio of ICE futures funds has dropped sharply to 4.84%. It has rebounded rapidly on the back of 70 cents/pound, breaking through 75 cents/pound, 80 cents/pound and other levels. It will be a crazy pursuit. The short side kills the falling speculators and the short side traps them.
The author believes that the background of this strong rebound in cotton prices is that the Federal Reserve’s 75 basis point interest rate hike in November is in line with expectations, and the negative news has been realized. Although Powell emphasized that the rate hikes will continue to be strong in the future, the Fed’s interest rate hikes have begun to become more dovish. The pace of Fed rate hikes may slow down in the future, and the upside space of the US dollar is limited. The recent trend is likely to be a process of peaking. The industry is optimistic about the medium and long term. Expectations for a rebound in stock markets and commodity futures are gradually increasing.
In addition, when the ICE market continued to break down and approached 70 cents/pound, not only a large number of ON-CALL price contracts were transacted, but also buyers from China, Vietnam, India, Pakistan and other countries signed contracts to purchase at bargain prices, 2022/23 Annual U.S. cotton exports turned from weak to strong. The latest U.S. cotton export weekly report shows that the number of U.S. cotton contracts last week increased significantly from the previous week, and China’s purchasing volume increased significantly, indicating a clear signal of demand recovery. According to market feedback, during the recent decline in cotton prices, some cotton textile companies and traders who entered the market to buy bottoms in the 70-75 cents/pound range continued to expand their profits, and confidence in the disk and spot markets showed a phased recovery.
After several days of strong rebound, has the ICE market trend reversed? Judging from the experience of previous years, U.S. cotton usually reaches the lowest level of the year in the second half of the year, and tends to rise from the end of the year to the beginning of the year. From this year’s high of nearly 160 cents to now, the cotton price has more than doubled, and 70 cents is also a long-term historical trend. The average price, so the market will most likely stabilize before the end of the year and find direction among the bottom range fluctuations. A real rise requires the cooperation of the economic environment and its own factors. Judging from the K-line chart, the rebound since the end of August has been relatively short-lived. At this stage, the short sellers have not given up their position. The short-term long and short sides will compete repeatedly at the 80 cents/pound mark. Only after patiently waiting for the main contract to stabilize above 85.50 cents can we technically determine that a new round of rising prices has begun.