- Jo Earlam
- June 2, 2022
- 10:11 am
- 10 min read
Rains in Texas, Shipments delays and yarn stocks build!
Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. -Sir John Templeton
CTN22 – 139.11 (+3.05)
CTZ22 – 120.10 (+1.67)
CTH23 – 115.77 (+1.47)
CTK23 – 112.55 (+1.16)
CTN23 – 109.10 (+0.79)
Zhengzhou CF209 – 20,320 (-195)
Cotlook “A” Index – 156.95 (-0.50)
Daily volume – 36,672
AWP – 139.86
Open interest – 210,800
Certificated stock – 1,087
July / Dec spread – (+19.01)
July Options Expiry – 10th June 2022
July 1st Notice Day – 24th June 2022
September Options Expiry – 19th August 2022
December Options Expiry – 11th November 2022
December 1st Notice Day – 23rd November 2022
Introduction
– It was a rather nasty start for Cotton in a Memorial Day holiday shortened week, that has seen the end of the Rogers Roll period on Wednesday, only to see a sharp recovery today highlighted in the chart of Z22 below where we have included a 1 month and 1 year chart. Note how the longer term chart has respected Fib retrace levels almost exactly!
– Open interest in Z22 continues to climb over old crop N22, which now exceeds the latter contract by nearly 26k contracts.
– Prices in old crop July have also faltered, despite the supportive unfixed “on call” position of end users, who will have welcomed the weakness seen this week in the face of the 2nd highest unfixed position in the 22 years of data available. Only the 2018 season exceeds the one we have today!
– Report 21 tonight confirmed this and is detailed on the link below and shows positions as of last Friday when July closed at 139.42. The unfixed portion is now down to a net 32,383 contracts net unfixed.
– Continued fixations will have been seen against July this week with July dipping to as low as 134.12 today, before bouncing and noting there are only 3 weeks to go when all this must be cleared up.
– Shipments by merchants to end users are still not occurring and often 3 to 4 months late and it is perhaps not too surprising there is talk of spinners exercising the right to invoice back! This is not only for fixed priced sales that are not being shipped in the face of a 19c/lb inverse but also for unfixed basis sales against the July contract, leading one to question if some of these “unfixed basis July” will just be closed out! The question springs to mind of whether the spinner actually knows his rights?
– Last weekend we looked at the open interest in July options but today we are taking a look at the open interest in new crop Z22 options and the near the money option open interest is included below, with a link to the entire open interest in the link at the bottom of this mail.
– There are bets all the way out to the 250 strike in December but volume bets at the 150 strike in particular and going all the way to the 200 strike. The put open interest is rather less and the skew remains heavily to the calls!
– Whilst it is clear that India and Bangladesh are still purchasing available Cotton it is not the same elsewhere and yarn stocks are building fast in the likes of Turkey and other Far Eastern markets, despite the lack of available Cotton. Demand concerns and build up of yarn is likely to weigh on the market in our opinion and a sell the rallies approach should prevail against Z22!
Conclusion
We maintain that involvement in N22 is something to avoid if possible, but for new crop December we maintain this contract is very fully valued above 125c/lb and the recent spike in N22 offered a golden opportunity to lock in a good proportion of new crop sales 25c/lb higher than one could get just 6 weeks ago.
Useful links
*Please note that we only share CFTC CTO on weekend reports.
Written by:
Jo Earlam
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