In the second week of October, ICE cotton futures rose first and then fell. The main contract in December finally closed at 83.15 cents, down 1.08 cents from a week ago. The lowest point in the session was 82 cents. In October, the decline of cotton prices slowed down significantly. The market repeatedly tested the previous low of 82.54 cents, which has not yet effectively fallen below this support level.
The foreign investment community believes that although the U.S. CPI in September was higher than expected, which indicates that the Federal Reserve will continue to increase interest rates vigorously in November, the U.S. stock market has experienced one of the largest one-day reversals in history, which may mean that the market is paying attention to the inflation part of deflation. With the reversion of the stock market, the commodity market will gradually be supported. From the perspective of investment, the prices of almost all commodities are already at a low point. Domestic investors believe that although the expectation of the US economic recession remains unchanged, there will be more interest rate hikes in the later period, but the bull market of the US dollar has also gone through nearly two years, its core benefits have been basically digested, and the market needs to watch out for the negative interest rate hikes at any time. The reason for the fall in cotton prices this time is that the Federal Reserve raised interest rates, causing economic recession and declining demand. Once the dollar shows signs of peaking, risky assets will gradually stabilize.
At the same time, the USDA supply and demand forecast last week was also biased, but cotton prices were still supported at 82 cents, and the short-term trend tended to be horizontal consolidation. At present, although cotton consumption is still declining, and supply and demand tend to be loose this year, the foreign industry generally believes that the current price is close to the production cost, taking into account the large yield reduction of American cotton this year, the cotton price has dropped 5.5% in the past year, while corn and soybean have increased 27.8% and 14.6% respectively. Therefore, it is not appropriate to be too bearish about future cotton prices. According to industry news in the United States, cotton farmers in some major production areas are considering planting grains next year due to the relative price difference between cotton and competitive crops.
With the futures price falling below 85 cents, some textile mills that gradually consume high priced raw materials began to appropriately increase their purchases, although the overall quantity was still limited. From the CFTC report, the number of On Call contract price points increased significantly last week, and the contract price in December increased by more than 3000 hands, indicating that textile mills have considered ICE close to 80 cents, close to psychological expectations. With the increase of spot trading volume, it is bound to support the price.
According to the above analysis, it is an important observation period for the market trend to change. The short-term market may enter consolidation, even if there is little room for decline. In the middle and late years of the year, cotton prices may be supported by external markets and macro factors. With the decline of prices and the consumption of raw material inventory, factory price and regular replenishment will gradually return, providing a certain upward momentum for the market at a certain time.
Post time: Oct-24-2022