Menu
CTK23 83.71 (-1.95)
CTN23 84.41 (-1.60)
CTZ23 83.75 (-1.52)
Zhengzhou WQK23 – 14,560 (+155)
Cotlook “A” Index – 96.60 (-0.75) – 1st March
Daily volume – 36,157
AWP – 70.78
Open interest – 185,782
Certificated stock – 1,147
K23 / N23 spread – (-0.70)
N23 / Z23 spread – (+0.66)
May Options Expiry – 14th April 2023
May 1st Notice Day – 24th April 2023
– Things almost got interesting for a little bit, didn’t they? Following last week’s strong export report, with rumours of another to follow (see below), the market rallied to its highest level since mid-February today and some even dared to dream of a challenge of the 90-cent level…
– Dreams can come true, though not, it would seem, in this current market. After reaching a high of 86.25 the market fell back to close at 83.71 basis the front month K23 and, as can be seen on the chart below, we remain in the middle of our range within a range.
– The US classing report as of 24th February reported a total of just over 14 million running bales classed. The nadir of 22/23 US crop predictions from the USDA came in the August WASDE at 12.57 million stat bales. At the time many market participants, including ourselves we must admit, believed this number was an overestimation. Since then, every increase in the US crop made by the USDA has been met with scepticism by many (once again we must admit this includes ourselves). Nevertheless, as classing progresses it seems the current USDA crop number of 14.68 million bales may not be too far wide of the mark after all.
– Over the past weeks there has been much talk of permission being granted for exports of Chinese cotton. Naturally, this has caused much bearish concern in some circles, and so we have spent some time looking into this. Firstly, it seems this is predominantly an administrative approval of a proposal that has been in the works for some time. Rather than signalling the imminent exporting of Chinese cotton it instead establishes an administrative structure should a future opportunity arise.
– Secondly, the domestic Chinese price is currently hovering around a dollar a pound. No one has exported Chinese upland bales for a very, very long time so what follows is necessarily guesswork to a degree. A 31-3-36 can be quite easily found at 1500/K23 CIF FE, so 98.71 usc/lb based today’s close. On top of the above dollar price of Chinese cotton one would need to add freight and ancillary costs, let’s say 5 cents. Without even addressing the Xinjiang / USA political issue, overseas mills would need to see a discount to US cotton before considering an entirely new growth, what would this be? 5 cents? More perhaps? So, in what is very much a “back of a cigarette packet” guesstimate, from today’s prices we would be looking for (very conservatively) a 10-15 usc/lb swing between the prices of US and Chinese cotton for a theoretical export of Chinese cotton to even began to make sense.
– For February, China’s manufacturing PMI came in at the highest since April 2012. As reported by the National Bureau of Statistics the manufacturing PMI for February was 52.6 up from January’s reading of 50.1 and expectations of 50.5.
– There has been a lot of talk in the market this week that a blockbuster export sales report was imminent. The actual report will have disappointed a lot of people, net sales for current crop totalled 170,600 bales. China was the largest buyer with 81,600 bales followed by Vietnam with 78,900 bales, whilst Pakistan cancelled 48,000 bales. Shipments improved to 207,700 bales but are still lagging the pace needed to reach the USDA estimate by about 70,000 bales a week.
– The CFTC cotton on call report based on positions as of 24th February showed little change on the week with a net increase of 913 contracts to the current crop on call sales position. This is now the 11th highest net position for the week of the year, though we currently have the highest number of outright on call purchases on record for this week of the year at 21,753 contracts, suggesting that there will be fixation selling against any rally to come.
We believe value is to be had in the low 80’s basis K23 and EAP would be a scale down buyer of Cotton from this level down to the long standing gap in the mid 70’s dating back to November, were prices to reach there. Above, we maintain that prices in the high 80’s has Cotton fully valued, with any move in to the 90’s to be considered a selling opportunity. We maintain that an anticipated relatively wide trading range of 75 to 95c/lb is likely to prevail to the end of the season ending May 31st.
*Please note that we only share CFTC CTO on weekend reports.
No image or information display on this site may be reproduced, transmitted or copied (other than for the purposes of fair dealing, as defined in the Copyright Act 1968) without the express written permission of Earlam & Partners Ltd. Contravention is an infrigement of Copyright Act and its amendments and may be subject to legal action.
The risk of loss associated with futures and options trading can be substantial. Opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options or securities. All opinions and information contained in this email constitute EAP’s judgment as of the date of this document and are subject to change without notice. EAP and their respective directors and employees may effect or have effected a transaction for their own account in the investments referred to in the material contained herein before or after the material is published to any customer of a Group Company or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein. While the information contained herein was obtained from sources believed to be reliable, no Group Company accepts any liability whatsoever for any loss arising from any inaccuracy herein or from any use of this document or its contents. This document may not be reproduced, distributed or published in electronic, paper or other form for any purpose without the prior written consent of EAP. This email has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. For the customers of EAP, this email is produced exclusively for our business and expert clients, it is not for general distribution and our services are not available to private clients. Past performance is not indicative of future results.