Last week (March 15-19), ICE cotton futures continued to plummet. The overall decline in commodity futures and the fierce confrontation between high-level meetings between China and the United States triggered financial market fluctuations.
Since March, the fundamentals of the cotton market have not changed, but the liquidation of long positions by funds has led to continuous declines, and the price has only a small amount of bargain hunting at low points. The main reasons for the fund selling were rising long-term U.S. bond yields and continued strength in the U.S. dollar index.
Currently, the U.S. ten-year Treasury bond interest rate has risen from 1% at the end of January to 1.78% last week. Rising U.S. interest rates have a clear negative impact on commodities, meaning higher interest rates on inventories and putting pressure on economic growth in countries with high debt levels. Although U.S. dollar interest rates are now only 2%, U.S. bond yields have risen 78% in less than two months, which may cause the commodity market to react in advance, just as cotton prices started 11 months ago at this time. The rise is the same.
As of March 11, the total volume of U.S. cotton contracts this year has reached 14.227 million bales, lower than the 14.527 million bales in the same period last year, but the second highest since 2010/11, and the average for the same period in the past five years. It was 11.845 million bales, completing 99.5% of the USDA forecast, compared with 89.7% in the same period last year. It is expected that U.S. cotton supply will be quite tight before new cotton comes on the market.
On March 19, ICE cotton futures tried to rise, but ultimately closed slightly lower under the pressure of technical selling. At present, there are obvious signs that fund bulls are withdrawing. Over the past week, the May contract has fallen by 2.88 cents, and has fallen by 4.15 cents since March. From the perspective of positions, the current 230,000 lots have basically returned to the level before Christmas, while the previous high in 2021 was close to 260,000 lots.
In the coming week, with the arrival of spring, new cotton planting will gradually begin across the United States, and the U.S. intended area report on March 31 is getting closer. The market believes that because corn prices have remained high recently and cotton prices have fallen, some cotton farmers should switch to corn. Judging from the weather conditions, the drought continues after the rain in Texas last week. The United States will maintain a La Nina climate from April to June, which will still have an adverse impact on U.S. cotton sowing.
Technically, ICE futures have been in a correction state since March. However, cotton prices have risen from 48.35 cents to 92.95 cents in nearly a year. It is not an exaggeration to see a certain degree of adjustment. If it can break through 88.56 cents in the short term, it is expected to continue to rise. If it falls below 82.87 cents, It will continue to drop to 79.75 cents. </p
