Since mid-January, ICE cotton futures have continued to fluctuate and rebound. The main March contract has opened at 85 cents/pound and 88 cents/pound, and the momentum of testing the strong resistance level of 90 cents/pound has not diminished. However, due to the upward trend of ICE, Affected by the general rise in bulk commodities in peripheral commodities and the Chinese New Year holiday, cotton traders’ quotations for cargoes and bonded cotton have decreased in the past week or so. Traders hold a wait-and-see attitude and hold stocks to sell. Some cotton companies only sell old customers and large customers. Quotation.
The author judges that the conditions for ICE’s main short-term trial and opening of 90 cents are basically mature. The reasons can be simply summarized as follows:
First, fundamentally, the drought situation in Texas, the main cotton-producing area of the United States, is difficult to alleviate, India’s CAI is expected to continue to reduce production in 2022/23, and buyers including China have shown a strong rebound in the signing of U.S. cotton in 2022/23. There is greater support for the ICE disk.
Second, the U.S. PCE price index increased by 5% year-on-year in December 2022, consistent with expectations. It was the lowest growth rate since October 2021, 0.5 percentage points slower than the 5.5% in November, indicating the Federal Reserve’s previous aggressive monetary tightening. Policies are working in the economy, and judging from the current situation, the most serious round of high inflation has passed. The industry expects that the Federal Reserve will further slow down the pace of interest rate hikes at next week’s interest rate meeting. It is not far away from pressing the “pause button”, and commodity futures will have a good opportunity to rebound quickly.
Third, the grade and quality indicators of U.S. cotton have dropped significantly in the middle and late stages of 2022/23, which does not rule out the possibility of a fund squeeze. According to the USDA report, from January 13 to 19, 2023, 66,100 tons of new flowers were inspected for 22/23 in the United States, and only 74.4% met the ICE cotton futures trading requirements, a decrease of 4.8 percentage points from the previous week; the cumulative inspection of US cotton this year was 307.58 million tons, a year-on-year decrease of 12.1%, and approximately 82.5% met the transaction requirements, a year-on-year decrease of 1.4 percentage points.
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