Since August, ice cotton futures have continued to strengthen, and the contract in December has risen to about 65 cents. However, the price rise is not driven by fundamentals, but the result of the global monetary policy easing stimulating the rise of stock market and futures. As long as money continues to flow into major markets, investors will be more cautious about shorting.
The rise in cotton prices is completely contrary to the current global epidemic. Although the unemployment rate in the United States dropped below 10% for the first time, the global economic recession is still an iron clad fact, and the second wave of epidemic in Europe is imminent, and the global economic situation will not improve in a short time.
Another reason why cotton prices are so strong is that the export of American cotton to China has not stopped. In fact, it is not necessary for China to import so much cotton. It is mainly to implement the first phase trade agreement between China and the United States, which has a great support for the cotton market.
In the past two months, CCI of India has actively sold cotton stocks, mainly to cotton merchants. At present, it has sold about 6 million bales of cotton, both old and new cotton, and the inventory is about 5 million bales. With a large amount of inventory digestion, CCI has raised the auction price in recent weeks, slowing down the pace of sales. Production is expected to reach 35 million bales this year due to the active monsoon rains.
From the demand side, clothing orders have begun to increase, retailers began to prepare for year-end sales. With the recovery of yarn production, cotton demand began to further strengthen, cotton prices in China, India, Pakistan and other countries continued to rise. The basis of Brazilian cotton has been greatly reduced, and its sales in major markets are good, especially in China and Bangladesh. West Africa cotton base also decreased a lot, sales also improved. If cotton prices continue to rise, the basis of these producing areas is expected to continue to fall.
In recent weeks, there have been new trends in cotton production in the northern hemisphere. Mali in West Africa has been greatly reduced, and its output is expected to be less than 100000 tons next year and nearly 300000 tons this year. Sustained rainfall in Pakistan has led to a drop in production to 6.5 million bales, down from the 7.5 million bales forecast a few months ago, which is a noteworthy situation.
With the gradual listing of new cotton, the rise of spot prices in various countries will encounter resistance. In the recent week, the price of American cotton has risen in India, while it has fallen slightly in China and Pakistan. Ice futures also retreated from recent highs, indicating the lack of momentum for short-term market upward breakthrough.
However, if the Fed continues to maintain its loose monetary policy and launch a new economic stimulus plan, it is easy for financial markets to have another wave of gains. At present, the U.S. stock market has reached a high enough level, investors may consider moving to the commodity market.
In addition, there are several things that will affect the trend of ice futures. The first is the US presidential election in November, the second is Sino US relations, and the third is the second wave of new epidemic in the world. However, it seems that governments are willing to print a lot of money to avoid a recession. As long as this continues, commodity futures will be compliant with QE to stimulate prices.