At the end of March, the main ICE cotton futures contract fell below 50 cents/pound without any suspense (the intraday low of 48.80 cents/pound), hitting a new low since May 2009; subsequently, the U.S. government cut interest rates and unlimited quantity Under the combined influence of QE, strong weekly contracted sales expectations for US cotton and short covering, the market barely regained the 50 cents/pound mark, but market tension and panic did not subside significantly.
Some institutions and cotton-related companies believe that although ICE continues to hit a 10-year low; although the cotton planting area in the United States, China, India, etc. will decline to varying degrees in 2020 due to the effect of grain and cotton price comparisons; although various countries have The crazy rescue mode of “helicopter money” or even “rocket money” has started, but “the bear market never tells the truth”, and it is a high probability that ICE will break 50 cents/pound in the short term. For cotton textile companies and traders, It is more sensible to enter the market below 50 cents/pound; however, speculators may be a little early in “buying the bottom” and they still need to trade time for space.
Why is ICE “easy to fall but difficult to rise” in the short term? The author briefly summarizes the following points:
First, the risks caused by the new coronavirus epidemic are still increasing. The “epicenter” of the COVID-19 epidemic sweeping the world was “handed over” from Europe to the United States. However, the United States missed the best prevention and control period and the government implemented the “ostrich” strategy, which resulted in a significant delay in the turning point of the epidemic in the United States. Recently, President Trump announced that he will extend the social isolation policy in the United States until the end of April, and it is not expected that the COVID-19 epidemic in the United States will reach an inflection point until June (as of 1:00 on April 1, Beijing time, there were 181,000 confirmed cases of COVID-19 in the United States. people). The impact of the epidemic on the global economy, traders, transportation, exchanges, etc. is still increasing, with no sign of weakening;
Second, the fundamentals of U.S. cotton are also “adding insult to injury.” First, USDA’s latest report shows that the intended cotton planting area in 2020 is 13.7 million acres, a year-on-year decrease of 1%, which is significantly higher than its previous data and data released by the National Cotton Federation (NCC forecast a decrease of 5.5%; US Cotton Farmers Magazine) (forecast to decrease by 12%); secondly, not only are the US cotton contracts signed from November to January facing a large number of defaults and delayed shipments, but also due to the impact of the new crown epidemic, not only the two terminals in Houston are closed, but cotton shipments from other east and west coast ports will also be affected. Very large constraints, the “return” pressure of US cotton has increased; thirdly, global cotton consumption demand is much lower than expected by all parties (including the procurement of domestic textile companies in the United States), and the production, sales and inventory forecast table may be adjusted on a large scale. Affected by the epidemic, many small and medium-sized textile and clothing companies in China, Vietnam, India, Pakistan, Bangladesh, Indonesia and Central American countries have reduced or even stopped production, and the demand for cotton quickly fell to freezing point;
The third is the “helicopter drop” Whether “money” can save the market is questionable. Recently, the Federal Reserve has introduced a variety of loose monetary policies and liquidity support tools, including restarting the commercial paper financing mechanism, money market mutual fund liquidity tools, and primary dealer credit mechanisms introduced during the 2008 international financial crisis. Some investment banks and institutions believe that the Federal Reserve’s rescue efforts have learned from the lessons of the 2008 international financial crisis and will no longer allow large financial institutions to fail, and the financial market will not fall into disorder or panic selling. In this case, the market panic will last relatively short. Although it is “drinking poison to quench thirst”, it is a very effective tool to fight against crises and economic recession. Therefore, finance, stock markets, and commodity futures are easier to detect after wide oscillations. Bottom rebound. </p
