On October 12, ICE cotton futures opened higher and moved lower. The main contract once again fell below 85 cents/pound, once hitting the limit (low 84.25 cents/pound), and closed at 84.86 cents/pound in late trading. The decline reached 4.07%.
According to industry analysis, ICE suddenly plunged sharply, catching funds and bulls off guard, and there was a “trampled” situation. On the one hand, although institutions, speculators, and cotton-related companies generally predict that the October USDA report will lower the 2022/23 US cotton production (it is indeed lowered by 20,000 bales from the September report, and is expected to be 13.81 million bales, the decrease is significantly lower than (expected by all parties), but global cotton consumption has also been significantly reduced by 660,000 tons, and ending stocks have increased by 679,000 tons. The negatives are obviously greater than the positives; on the other hand, the voice of the Federal Reserve to continue to aggressively raise interest rates in November has increased, and ICE is under pressure. Fed Governor Bowman said that if there are no signs of downward inflation, it is still possible to raise interest rates significantly, fully supporting the Fed’s previous 75 basis point interest rate increase. The federal funds rate needs to rise to restrictive levels and stay there “for some time.” The Chicago Mercantile Exchange’s “Fed Watch” shows that the probability of the Fed raising interest rates by 50 basis points in November is 15.2%, and the probability of raising interest rates by 75 basis points is 84.8%. Of course, the decline in crude oil, energy, wheat futures, etc. also contributed to the sharp correction in ICE’s market.
Obviously, ICE was overly frightened by yesterday’s sharp decline. The risk of global economic recession has increased, cotton consumption expectations for 2022/23 have fallen sharply, which has led to bearish fundamentals. In addition, the escalation of the Russia-Ukraine war has triggered intensified geopolitical tensions and other factors. ICE The main contract’s oscillation range returned to 80-85 cents/pound.
Some cotton merchants and investors judge that whether it is from the perspective of weather reasons, low cotton prices triggering widespread resistance among farmers, slow sales of seed cotton, and steady rebound in other agricultural product futures; or in addition to China, Pakistan, Turkey, Bangladesh, and Vietnam Judging from the fact that various countries’ contract purchases of US cotton in 2022/23 are still very strong, ICE is still expected to stabilize at 85 cents/pound after a short period of panic adjustment, test upward and open the “skylight” of 90 cents/pound. The two-day correction may be just an “episode” in ICE’s rebound, and speculators still need to be cautious when pursuing short positions.