On June 17, ICE cotton futures contracts continued to oscillate upward, opening a strong resistance level of 60 cents/pound during the session, which further restored the bullish sentiment of bulls, funds, and cotton trading companies.
Some international cotton merchants and investment institutions believe that the reasons for the recent shift in ICE’s focus are as follows: First, U.S. Trade Representative Lighthizer recently stated that since the first phase of the China-U.S. economic and trade agreement came into effect in February, U.S. cotton exports to China are much higher than previous levels, but still lower than the significantly increased target for this year. However, the specific target for cotton purchase volume at the end of the year was not disclosed; secondly, the renewed conflict on the Sino-Indian border has a certain stimulating effect on the rise of ICE. The industry is worried that Indian cotton exports to China in 2019/20 and 2020/21 will be greatly affected. Foreign Ministry spokesperson Zhao Lijian said that China and India are in close communication through diplomatic and military channels to resolve relevant issues; third, the dry, hot and windy weather continues in western Texas in the United States, and the probability of short-term rainfall is low, which will not seriously affect sowing. The cotton seeds that were “rushed to be sown” in the early stage are also difficult to germinate and emerge; fourth, the U.S. stock market performed relatively strongly under the Fed’s interest rate cuts and the U.S. government’s unlimited fiscal stimulus; coupled with the rise in crude oil and gold, the “pull up and down” of ICE The role cannot be underestimated.
So can ICE stand firm and continue to rebound upward on the back of 60 cents/pound, testing 65 cents/pound or even 68 cents/pound? The author’s opinion is that there is little hope. The long and short sides will still compete repeatedly within the 57-60 cents/pound box, and it will be difficult for the main contract to hold on to 60 cents/pound. The main reasons are as follows:
First, the probability of a second wave of COVID-19 outbreak has increased significantly, and the impact on the global economy, trade, transportation, exchanges, etc. is still continuing. Recently, not only have confirmed cases in the United States, India, Germany, and Turkey rebounded, but the situation in China is also not optimistic;
Second, India’s cotton planting area may increase significantly in 2020. Supported by the increase in MSP and the timely arrival of the southwest monsoon, some Indian institutions and cotton companies predict that the cotton planting area may increase by 24% year-on-year; considering that the Indian government continues to “close the country” due to the epidemic this year, cotton consumption demand will plummet, so 2020 In the second half of the year, not only will CCI focus on selling lint cotton, but new cotton will also be introduced to the international market in large quantities;
Third, US cotton exports to China are good, but Turkey, Pakistan, Indonesia, and Bangladesh are affected by the epidemic. The number of contract cancellations by buyers in other countries has also increased significantly, and there are fewer and fewer active buyers of US cotton. </p
