Global Economy: "Interest Rate Cut Tide" Is The Driving Force For The Bulk Commodity Market

"Interest rate cut tide" is the driving force for the bulk commodity market

Since September, there has been a wave of interest rate cuts around the world. After the central banks of Canada, Europe and Indonesia successively announced interest rate cuts, the Federal Reserve announced to cut the federal funds rate by 50 basis points to 4.75% - 5.00%, the first interest rate cut since March 2020, followed by the Hong Kong Monetary Authority of China, Kuwait, Bahrain, the United Arab Emirates, Qatar, Jordan South Africa and other countries or regional central banks have also announced interest rate cuts.

In addition, European Central Bank Executive Committee Panetta said that the rate of interest rate reduction may be accelerated in the next few months. From the perspective of the general trend, the global monetary policy may turn to easing, and the liquidity environment will gradually improve. In the short term, the global monetary policy has changed from tight to loose to good commodity markets. In the medium and long term, the actual effect of the initial shift of monetary policy on economic growth needs time to verify. Considering that the global geopolitical situation is still unstable, the risk of re inflation and economic recession in the United States has not been eliminated, and the U.S. election is still in progress, commodity price fluctuations may intensify.

International textile and clothing trade data boosts market confidence

Global cotton consumption continues to show a slow recovery trend driven by textile and clothing consumption. The textile and clothing import and export data of major trading countries showed year-on-year growth, which played a certain role in boosting market confidence. According to the prediction of the US Department of Agriculture, the global cotton consumption in 2024/25 will be 25.2 million tons, an increase of 560000 tons year on year.

According to the customs data released by the European Union, the United States and Japan in September, the import volume of textiles and clothing in July was US $1.12 billion, US $1.09 billion and US $260 million, up 0.2%, 4.3% and 2.7% year on year, and 23.6%, 22.3% and 29.6% month on month. According to the data of the Ministry of Commerce and Industry of India, the export volume of Indian textiles and their by-products in July was US $2.9 billion, up 5.7% year on year.

According to Vietnamese customs data, Vietnam's textile and clothing export volume in August was 4.05 billion US dollars, up 8.2% year on year. Although the data of some countries in August have not yet been released, the historical data shows that in most cases, August October is the centralized trading period of international textile and clothing trade, and the trade volume is generally higher than other months. It is expected that the demand for international cotton replenishment will rise accordingly. At present, cotton is concentrated in the southern hemisphere, and cotton in the northern hemisphere has entered the pre-sale stage. The export progress of major cotton exporting countries is different.

According to Brazilian customs data, Brazil exported 118000 tons of cotton in August, an increase of 7000 tons year on year, the highest level in the same period since 2019/20. According to the data of the US Department of Agriculture, as of September 12, the cumulative contracted export of US cotton in 2024/25 was 1.137 million tons, accounting for 44% of the estimated annual export volume of the US Department of Agriculture, a year-on-year slowdown of 5 percentage points; The cumulative shipment volume was 209000 tons, a year-on-year decrease of 68000 tons.

The forecast of new cotton production has been lowered

Since August, adverse weather has increased in major producing countries in the northern hemisphere, affecting cotton production and quality expectations. The drought area in the cotton producing areas of the United States once accounted for 43%, and then Hurricane "Frans" brought storms to the cotton producing areas of Louisiana, which was not conducive to cotton wadding; The cotton producing areas of India and Pakistan also suffered heavy rains. According to the September global supply and demand forecast of the US Department of Agriculture, the global cotton output in 2024/25 will be 25.35 million tons, with a quarter on quarter decrease of 260000 tons. Among them, the US cotton output was 3.16 million tons, down 130000 tons month on month; India's cotton output was 5.23 million tons, down 110000 tons month on month; Pakistan's cotton output was 1.24 million tons, down 70000 tons month on month.

At present, the major cotton producing countries in the northern hemisphere have entered the cotton picking period in succession. The weather is constantly disturbed, and the picking progress is slightly differentiated. According to the report of the US Department of Agriculture, as of September 24, the area affected by drought in the US cotton producing areas accounted for 32%, 2 percentage points less than last week; As of September 22, the cotton picking rate in the United States was 14%, 2 percentage points higher than the previous year. According to the statistics of domestic institutions in India, as of September 8, the cumulative market volume of Indian cotton in 2024/25 was 23700 tons, down 81% year on year.

According to the statistics of Pakistan Ginning Mills Association, as of September 15, the cumulative amount of seed cotton converted into lint was about 222000 tons, a year-on-year decrease of about 63.5%. According to the data of Brazil National Commodity Supply Company, as of September 22, the cotton picking rate in Brazil was 99.8%, 0.2 percentage points higher than that of the same period last year. It is estimated that Brazil's cotton output in 2024/25 will reach a record 3.675 million tons, higher than the previously estimated 3.64 million tons. In addition, the United States has lowered its cotton output forecast twice in a row by a large margin, and the actual loss remains to be assessed, which does not rule out the possibility of raising the output forecast in the later period.

The net position of American Cotton Fund remains high

According to the position report of the U.S. Commodity Futures Trading Commission (CFTC), as of September 17, the position of cotton futures on the New York Intercontinental Exchange (ICE) was 235001, an increase of 3496 and a clearance of 1508. From the perspective of investor category, the industrial side (producers, traders, processors) has 15887 clearance orders, which has changed from net long position to clearance position again since the beginning of August, but the absolute value of the clearance order is still at a very low historical position, indicating that the industrial capital still recognizes that the current cotton price has a good long-term investment value; The net open positions of managed funds were 29018, a sharp decrease of 20268, or 41%, compared with the previous week, marking the fourth consecutive month on month decline. In the context of the Federal Reserve's interest rate reduction cycle, it is not ruled out that it may turn to the net multi order state again in the later period. In the short and medium term, there is still a driving force for the market speculative funds to promote the further development of the rebound of American cotton futures.