From October 16th to 20th, the domestic and foreign cotton markets fell sharply. Increased macro risks and continued sluggish cotton demand triggered large-scale selling by fund bulls. The main December contract of ICE cotton futures continued to fall, barely holding on to 82 US dollars on Friday. cents, a single-week decline of more than 4%, and the market fell below the long-term consolidation range of 84-89 cents. At the same time, due to multiple negative impacts, domestic Zheng cotton futures fell below 16,000 yuan/ton for the first time in the past five months, a weekly decline of more than 5%.
The magnitude and speed of the fall in cotton prices this time exceeded the expectations of many market participants. The main reason for the sharp drop in the external market was that the Palestinian-Israeli conflict may expand, leading to a sudden increase in financial market risks, and Federal Reserve Chairman Powell once again said that it may continue As interest rates rise, funds are withdrawn from agricultural products as a hedge and instead pursue products such as the U.S. dollar and gold. Cotton has also suffered as a result. Increased macro risks have put new pressure on the already flat cotton demand. The U.S. cotton export weekly report showed that U.S. cotton exports remained weak during the drop in cotton prices the previous week. From the current point of view, the supply of new cotton from Australia and Brazil has increased significantly, and the prices are also quite competitive. On the one hand, the supply of old cotton in the United States is tight, and new cotton cannot be fully replenished in time. On the other hand, new cotton is on the market in various countries. Afterwards, supply increased significantly, and it is difficult to release import demand in the short term. Unless China actively uses import quotas, it is difficult for U.S. cotton exports to see a significant improvement before the end of the year. In addition, the weather in the United States has been good recently and the new cotton harvest is progressing smoothly, giving the market no opportunity for speculation.
After the recent decline, ICE futures positions have declined, and the pressure accumulated in the early stage has been released, which is beneficial to the smooth operation of prices in the later period. According to the latest CFTC position report, as of last Tuesday (October 17), funds had net sold about 14,400 lots in a week, and the number of net long positions dropped to 33,345 lots. The trading volume of ICE futures in the past few trading days has been huge, and the number of fund long positions will be further reduced. After the continuous selling, selling orders in the cotton market gradually dried up, and the downward momentum of the main December contract weakened. Cotton prices showed signs of stabilizing, and the market stopped falling and rebounded on Monday.
To sum up, under the circumstances of increasing macro risks and weak fundamentals, cotton prices may turn from a strong shock in the early stage to a weak operation in the near future. Last week, the main December contract returned to the level of a year ago, not far from last year’s absolute low. From a historical perspective, the probability of a year-round low during the peak harvest period is relatively high. Considering that cotton demand is in the process of slow recovery, it has become a fact that US cotton supply has significantly reduced year-on-year. It is expected that there will be little room for cotton prices to continue to break downward. Big and cheap enough at 80 cents.
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