Cotton prices pulled back sharply last week, with profit taking at the end of the month and a surge in U.S. Treasury yields triggering considerable selling. But as the new month began and other markets resumed gains on March 1, bullish sentiment in the cotton market heated up again.
StoneX Group cotton risk management analyst Bailey Thomen said the market continues to be bullish and even if prices rise to highs, demand is still good. From a technical perspective, cotton is not overbought as it was last week, and the market’s next target may be a retest of the 96.50-cent level. The weekly report on U.S. cotton exports is still crucial. As the U.S. dollar index rebounded last week, on March 1, the index closed above 91 cents for the first time in nearly a month. Whether it will affect U.S. cotton exports needs attention.
On that day, the U.S. stock market recorded its largest single-day gain since June last year, and the U.S. 10-year Treasury bond yield fell to 1.449%. Meanwhile, U.S. approval of another coronavirus vaccine and fiscal stimulus boosted expectations for a swift economic recovery. In addition, U.S. President Joe Biden won his first legislative victory, with the House of Representatives passing his $1.9 trillion COVID-19 relief plan early Saturday. The bill has now been submitted to the Senate.
The latest CFTC position report shows that as of the week of February 23, funds had a net purchase of 3,886 lots, and the number of net long positions reached 72,454 lots. However, this was the data before the sharp drop in cotton prices last week. So the actual net long position is likely to be lower than this number. Therefore, if the price upward trend does not change, the fund will have more power to pull up after a sharp decline.
On March 1, ICE futures opened higher and moved higher, with the July contract once approaching the daily limit. However, subsequent weakness in grain and other markets triggered some speculative selling, which put some pressure on the cotton market. Despite this, the Dow Jones stock index’s surge of more than 600 points still greatly stimulated the bullish sentiment in the cotton market and helped cotton prices close sharply higher.
From a technical perspective, the sharp drop in cotton prices last week caused considerable damage to technical graphics, and we need to remain cautious about short-term trends. Foreign analysts said that the longer cotton prices stay below the previous high, the market believes that the possibility of a decline will be greater. Grain prices fell on Monday, and cotton usually reverses its trend on Tuesday, so the recent trend in cotton prices will be subtle. </p