As the economy continues to contract, what will be the trend of cotton prices?

After the Mid-Autumn Festival, the pressure on the international market continued to increase. Under the influence of unfavorable factors such as the US dollar continuing to hit ne…

After the Mid-Autumn Festival, the pressure on the international market continued to increase. Under the influence of unfavorable factors such as the US dollar continuing to hit new highs, US inflation exceeding expectations, increasing cotton supply and declining demand, the main ICE cotton futures December contract fell below 100 cents, further opening up. There is room for downward exploration, and the trend of technical graphics has further deteriorated. Judging from the situation in previous years, as new cotton approaches the market, this time has often been the market bottom stage. This year’s situation seems to be clearer. The macroeconomic fundamentals have weakened, and the market decline is inevitable.

In fact, the biggest cause of this decline is U.S. inflation and the resulting increase in expectations for the Federal Reserve to raise interest rates. On Tuesday and Wednesday this week (September 20-21), the Federal Reserve will hold its monthly interest rate meeting. As the U.S. CPI unexpectedly rose in August, and Powell has repeatedly reiterated that strict control of inflation will persist to the end, the market generally believes that the Federal Reserve’s benchmark interest rate will be raised again by 75 basis points this time, causing the U.S. dollar to hit new highs continuously, affecting major economies. The purchasing power of consumers triggered a massive sell-off in dollar-denominated goods. Affected by this, the US Dow Jones Index fell 4% in a week, approaching a three-month low this year.

Against the background of continued macroeconomic contraction, what is the situation of cotton terminal consumption? Recently, there are still many reports about abundant terminal retail inventory and declining demand in the United States. This is very consistent with the previous news about the decline in global factory startups, and also indicates that downstream forward orders are expected to decrease. Foreign analysts believe that for the textile industry chain, this year’s “winter” has actually arrived. In the later period, with the consumption of inventory, production will gradually recover, but the overall replenishment of the supply chain may have to wait until the first half of next year. Before the inventory pressure in the textile industry is resolved, it is difficult for cotton prices to rise significantly.

Last week, the U.S. Department of Agriculture finally released U.S. cotton export data that had been delayed for several weeks. Judging from the total volume, the four-week cumulative sales of only 800,000 packages is not surprising, but it is also not discouraging. The market believes that, at least from the perspective of U.S. cotton exports, excessive concerns about declining consumption are unnecessary. In fact, according to the United States Department of Agriculture, committed sales in the United States so far for the 2022/23 season have reached 8.3 million bales, and 1.45 million bales have been shipped, up from 6.65 million bales and 1.25 million bales in the same period last year. The USDA’s September report estimates that US cotton exports this year will be 12.6 million bales, which means that the average weekly shipment of US cotton for the rest of the year only needs to reach 240,000 bales. For most of the 2021/22 season, US cotton will The weekly shipment volume is no less than 200,000 to 300,000 packages. Therefore, with the U.S. cotton production significantly reduced this year, it is estimated that it will be relatively easy to achieve the export target of 12.6 million bales. From this perspective, U.S. fundamentals still have strong support for cotton prices.

The weather forecast shows that the hot and dry weather in the US cotton-producing areas in the next two weeks will be beneficial to the maturation and harvest of new cotton. However, the recent continuous rainfall in the US cotton-producing areas has led to rotten bolls and dead cotton in many areas, and the output of new cotton has increased. The space may be limited, and the support of US cotton supply to the market will continue to exist. But if demand continues to be depressed, insufficient supply will make it difficult to drive prices up significantly. It should also be noted that although ICE futures currently has only 9.12 million On-Call contracts for this year (including 5.37 million packages for the December contract), which is far lower than the 14.64 million packages in the same period last year, US cotton production this year has decreased by 4 million packages year-on-year. , so the role of price point orders when the contract expires cannot be ignored.

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Author: clsrich