Since the end of January, ICE cotton futures have started to rise in a straight line from a low of 84.97 cents/pound. Some institutions and cotton companies use the term “one step in place” to describe the crazy rise in this round of external market; however, after a simple correction, ICE bucked the trend and surged again. On the upside, the May contract not only broke through 95 cents/pound again, but also opened round-number marks such as 97 cents/pound and 99 cents/pound. On February 27, the market was closed at the daily limit, setting a new high since September 14, 2022. , 100 cents is about to be strongly broken through, and the competition and stalemate between the long and short sides will undoubtedly move up to 95-100 cents/pound.
Regarding the reasons why the main ICE cotton contract has risen by more than 14 cents/pound, or more than 16.8%, within a month, the author’s views are summarized as follows:
First, long funds continued to enter the market and increased their long and short holdings. According to CFTC statistics, in the three weeks since February, the total positions of ICE cotton futures have increased by 16,020 contracts, 22,463 contracts, and 13,172 contracts respectively, while the net long positions of index funds have increased by 6,500 contracts, 6,500 contracts, and 805 contracts respectively. The market has been bullish. shrouded.
Second, U.S. cotton fundamentals helped ICE futures rise. On the one hand, according to USDA statistics, as of February 15, 2024, the United States has accumulated net contracts to export 2.4154 million tons of cotton for the 2023/2024 season, reaching 89.89% of the annual expected export volume (2.678 million tons). The export progress is good; on the other hand, U.S. cotton production in 2023/24 may be slightly lower than the latest USDA report. According to statistics, as of February 22, a total of 2.6572 million tons of US cotton have been inspected this year, which is 48,800 tons different from USDA’s forecast of a total cotton production of 2.706 million tons in 2023/24. However, the current weekly inspection volume of US cotton has dropped to 3,000 tons. Ton or so, all parties judged that the USDA output forecast may be on the high side. In addition, there have been strong calls recently that U.S. cotton farmers and cotton processing companies have sold out of resources.
Third, in the external market, the probability of the Federal Reserve cutting interest rates in May/June continues to rise, the Red Sea crisis, the decline of the US dollar, etc. have shown their effects on the stock market and commodity futures market. A Reuters survey released on February 20 showed that the Federal Reserve may lower the federal funds rate target range for the first time as early as June this year at its monetary policy meeting. Powell said the Fed knows the risks going forward include not just cutting rates too soon, but also cutting rates too late. Almost all members support an interest rate cut this year, but the specific time and magnitude of the rate cut are still a big question mark.
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