Last week (February 22-26), the biggest highlight of the cotton market was that ICE futures fell to their limit on Thursday. The plummeting price of cotton is not due to factors such as USDA data or cotton itself, but due to the overall sell-off in the commodity market, the surge in U.S. bond yields, and the profit-making behavior of funds at the end of the month.
However, after cotton prices fell for two consecutive days, February ICE futures still rose by a cumulative 9.2%, and prices have been rising for several days in a row. Adjustments are inevitable, and cotton fundamentals are still improving. This week, the March contract is about to “end” and new funds are expected to enter the commodity market. Unless there is comprehensive fund selling in the financial market, speculative buying will still enter the market when cotton prices fall.
Currently, there are 32,500 contracts in May and 36,200 contracts in July that need to be priced. Textile mills need to complete price pricing when cotton prices fall, which may have happened during last week’s sharp drop. The CFTC position report shows that commercial short positions are 213,400 lots, and contracts will ultimately need to be purchased to close out the short positions. The decline could spur textile mill purchases, especially if futures prices stabilize this week. At the same time, fund bulls still have “ample ammunition” and can act according to the opportunity at any time.
According to statistics from the United States Department of Agriculture, the number of cotton contracts signed in the United States for the 2020/21 season so far has reached 13.409 million bales, which is only slightly lower than the 13.433 million bales in the same period last year, but it is still the highest since 2010/11. The highest level, higher than the average of 11.027 million bales for the same period in the past five years, has completed 94% of the USDA export forecast, and the average for the same period in the past five years was 83%. China’s cumulative contract volume is 1.98 million bales, more than double that of the same period last year and the highest level since 2011/12. The average for the same period in the past five years is 1.496 million bales.
Technically, ICE futures rose to 95.60 cents before the main plunge. Judging from the magnitude and scale of previous price increases, this pullback may last several weeks, with the low likely to be around 84 cents. Although cotton prices are blocked at 95-96 cents, this is not the end of this price increase. In the medium term, there is still more room for price increases. Cotton prices are expected to see some gains this week, and the market may drop slightly before mid-March. </p
