Since mid-September, ICE cotton futures have entered a volatile downward channel, falling sharply in the past three trading days. The main December contract fell from 108.10 cents/pound to 93.12 cents/pound, a decline of 13.86% in more than a week. Although the pressure level of 90 cents/pound is close at hand, there is still a strong bearish atmosphere in the disk and futures markets. Some institutions and cotton-related companies judge that the main short-term ICE contract is expected to fall below, and even test the low in mid-July 2022. At 82.54 cents/pound, it is not recommended that domestic cotton textile companies and traders enter the market to build positions above 90 cents/pound, but instead hold the stock and wait for the dip signal to appear.
The main reasons for the bearishness in the industry can be simply summarized as follows: the external market is counting down to the Federal Reserve’s aggressive interest rate hike in September; the continued strength of the U.S. dollar is suppressing the stabilization/rebound of commodity futures, the sharp fall in energy prices, and the rising risk of global economic recession and other negative factors. , it is difficult to provide impetus for ICE cotton futures to stop falling and rebound.
From a fundamental perspective, the weather has gradually improved in major cotton-producing areas in the United States in recent days, which is conducive to cotton growth and harvest, and India’s cotton production in 2022/23 is expected to increase significantly year-on-year (CCI’s latest estimate is that India’s cotton production is expected to reach 36 million bales, a year-on-year increase of 15 %), coupled with the general belief that the USDA report has significantly overestimated the cotton consumption capacity of China, India, Pakistan, Vietnam and other countries in 2022/23, the global cotton supply exceeds demand. Therefore, the fundamentals do not support ICE. The market reversed strongly.
However, the author believes that if the main ICE contract falls to around 80-90 cents/pound or even 90 cents/pound, cotton-using companies can consider tentative and buying in batches. Even if they fail to buy at the bottom, the risk is not great. On the one hand, traders on the ICE market are currently overly panicked about the Fed’s interest rate hikes and the economic recession in Europe and the United States, which has overdrawn the extent of the ICE correction; on the other hand, the overall proportion of U.S. cotton and the proportion of good Texas cotton is still significantly lower than in previous years. In 2022/ US cotton production in 2023 is still worrying. The U.S. cotton production report released by USDA shows that as of September 18, 2022, 33% of U.S. cotton growth conditions were good or above, a decrease of 28 percentage points from the same period last year; among which, the proportion of poor seedlings in Texas increased from 53% to 56%. %. According to USDA data, Texas’ cotton production is expected to decrease by 58% this year, and U.S. cotton production has dropped by 21% year-on-year, hitting a new low since 2015. In addition, since Brazilian cotton, Indian cotton, etc. are significantly less cost-effective than U.S. cotton in 2022, textile companies are more inclined to use U.S. cotton for medium and long-term traceability orders. In addition to cost advantages, the probability of exports being traced and detained is lower. .