On May 13, the market fell sharply after digesting the bullish USDA report the day before. Thursday’s weekly US cotton export report is about to be released, and short sellers are expected to be a little nervous. From now on, every subsequent weekly export report will be crucial, because the ending inventory of US cotton will reach a 14-year high. Such a large supply is mainly caused by a 6 million bale reduction in consumption in April due to the epidemic. If China cannot continue to import large amounts of U.S. cotton, a huge amount of U.S. cotton inventory will be carried over to the next year.
Traders who pay attention to technical graphics trends believe that the July contract is expected to recover 50% of its previous losses, and the next target price is 61.10 cents. However, there are still 30 days left for July contract options to expire, and even an increase is estimated to be “one step forward, two steps back.” On May 13, the July contract had fallen sharply, driven by the liquidation of long positions and the decline of the Dow Jones Industrial Average.
In the past two days, the Dow Jones Index has fallen by nearly 1,000 points, and the U.S. economy is faltering. The reason for the weakness of the Dow Jones Index and related financial markets is that Federal Reserve Chairman Powell asked the government to continue to provide additional economic stimulus. Now the Senate has prepared 30,000 billion in aid. Judging from the recent strong calls from all parties, the U.S. economy is in danger of collapse. Under this kind of crisis, all commodities can only fall, and cotton is no exception.
The market holds two opinions on this week’s U.S. cotton export weekly report. One believes that U.S. cotton exports will continue to increase and China will remain the largest signing country, but another voice believes that U.S. cotton signing will continue. The number is very low or even negative because China may cancel high-priced contracts signed in the past, especially since Trump recently threatened to re-impose tariffs on Chinese products. The U.S. Futures Brokerage Company said that there is no obvious fundamental support for the market at present. At this stage, we can only hope that there will be some demand from China to support cotton to remain around 58 cents, but it is estimated that the actual data may not be good.
Analysts said that China’s expansion of imports of U.S. cotton is not real cotton consumption, but just a transfer of U.S. cotton stocks to China. The market does not need to take the USDA’s prediction of a substantial increase in consumption next year too seriously. Countries around the world will be very slow to recover from the epidemic, and cotton prices still have a long way to go. </p
