CTK22 119.80 (+1.26)
CTN22 115.57 (+0.49)
CTZ22 101.24 (+0.43)
Zhengzhou CF205 – 21,210 (-20)
Cotlook “A” Index – 138.70 (+3.65) – 3rd March
Daily volume – 24,904
AWP – 113.74
Open interest – 238,736
Certificated stock – 617
May / July spread – (+4.23)
July / Dec spread – (+14.33)
May Options Expiry – 14th April 2022
May 1st Notice Day – 25th April 2022
Introduction
– Outside events continue to rock the cotton market and much, if not all of the volatility we are seeing can be attributed to the influences of outside markets as opposed to cotton’s own fundamentals. This week has seen three out of four days of triple digit moves for May ’22, though today’s close is only 117 points higher than the end of last week at 119.80, up 126 points for the day. New crop Dec ’22 is 91 points higher than Friday’s close at 101.24.
– Somewhat obscured by the ongoing global situation is the day to day of cotton fundamentals. We remain in a relatively tight stock situation; EAP’s own global STU for 2022/23 is around 60% compared to the USDA’s 68%. This tightness is being exacerbated by ongoing logistics issues limiting nearby availability and reports out of India which suggest a smaller crop and tightening balance sheet.
– This nearby tightness is evident in the strong demand for anything that can be shipped promptly, as mills in some countries still need to fill gaps in their nearby coverage. However, beyond this the picture is less encouraging. Reports from more and more markets are of yarn margins pushing against or crossing over break even, with reports of weakening yarn prices in some locations and concerns as to end user demand. Whilst tighter ending stocks should remain supportive in the near term, it is tough to sustain a bull market in the face of falling demand and we need to watch this very carefully.
– We have commented in recent reports as to the action in the outside markets and their current strong impact on the cotton market. Whilst we do not wish our reports to become overly repetitive on singular subjects, given the current global situation, we cannot ignore the movements in these markets. As such, we have included the charts of corn, wheat, oil and the S&P 500 below.
– The CFTC Cotton-on-Call report, based positions as of 25th February showed net on call sales continuing to decline week-on-week, though this week it actually reflected “voluntary” fixations in the May and July contracts rather than the inevitable drawing down of March positions we recently saw in the approach to FND. Nevertheless, we still have the largest net on call sales position for this week of the year at 84,615 contracts. May ’22 is the second highest ever for this week of the year with 37,127 contracts, whilst July is in the number one spot with an alarming 47,472 contracts net unfixed for the month.
– The USDA export sales report for the week ending 24th February showed good net sales of 348,600 bales, led by Vietnam with 96,900 bales. For 2022/23 crop 105,200 bales were reported and Vietnam was, once again, the best buyer with 75,800 bales. Exports of 354,100 bales remain off the pace of around 400,000 bales a week which we need to reach the USDA target.
Conclusion
EAP think that Cotton is fully valued (if extremely volatile) at current levels and considering what is going on in with Russia and the Ukraine we believe that if possible, a flat position is probably the safest course of action at the present time!
Useful links
*Please note that we only share CFTC CTO on weekend reports.
Written by:
Jo Earlam
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