Thursday Cotton Bullets – 03/06/2021
December new crop Cotton prices see a strong start to the new marketing year!
CTN21 84.21 (+0.44)
CTZ21 85.04 (+0.38)
CTH22 85.02 (+0.41)
Zhengzhou CF109– 15,745 (-35)
Cotlook “A” Index – 94.40 (+1.40) – From the 2nd June 2021
Daily volume – 34,059
AWP – 67.77
Open interest – 230,386
Certificated stock – 146,886
July/Dec spread – (-0.83)
July options expiry – 11th June 2021
July 1st notice day – 24th June 2021
– A Memorial Day bank holiday shortened week has seen Cotton futures volume on the increase, as we start the month of June and the new marketing year, in what is a time of the year that is often associated with lots of volatility as we move from old crop July to new crop December, with the GSCI roll period beginning next Monday.
– The 2021 marketing year is now over and the range for the year was 38.44c/lb! This was above this century’s average of circa 36c/lb, noting a marketing year beginning 1st June 2020 and ending 31st May 2021 and thereby utilising futures months of the same marketing year i.e. Z20 and H, K and N21! An average intraday range of the front month at 157 points was slightly higher than normal, noting the previous 5 year average move was 140 points!
– The low occurred in the December contract on the first day of the season on June 1st at 57.16 and our high was on the 25th February, basis the May contract, at 95.60. This was the most volatile year since the 2011/12 season! There were 269 days between the low and the high against the 21st century average of 210 days! It was an equally volatile year for Cotton’s big brothers of Soy, Corn and Wheat which, like Cotton, all saw prices rise strongly!
– All in all, it was a nothing out of the ordinary season, noting June seasonal lows are the most common month of the season for lows this century, occurring no less than 9x out of 21 years so far. We question whether June will once again be the seasonal low month for the forthcoming season?
– Indian spot physical prices have been very strong and whilst some physical business has been occurring the amount of volume does not perhaps warrant the very strong move we have seen in New York this week!
– The “Cotton on Call” Report as of week 22 and showing positions from last Friday saw the imbalance between “on call” sales and purchases drop to a net imbalance of 11,776 contracts basis the July contract and that needs to be cleared up before N21 1st notice day in about 3 weeks and offers good support to the old crop contract.
– Looking further ahead, the imbalance between “on call” sales versus purchases is a net 52,265 contracts in favour of unfixed “on call” sales for the 21/22 season to include Z21, H, K and N22.This figure is the highest imbalance since the 18/19 season for this time of the year.
– However and back then, we had speculators holding one of the longest positions they had ever had! Moreover prices in Z18 were in the low 90’s and it proved to be the highest price of the 18/19 season. This time, speculators hold about half the long position they had back then and in the opinion of EAP is an all together different scenario compared to back then!
– Whilst Texas has rain, we are hearing on the grapevine that it is almost too wet to plant in certain areas and word on the street says it’s a lot easier to sit on the couch and receive a fat insurance cheque from the government than to work hard for not a lot more and potentially much less!
July continues to trade above the recent 81.50 lows and there seems reasonable support considering the recent volatility being seen in outside markets. We expect old crop to hold the 80’s on a closing basis before N21 expiry as open interest diminishes, though one must be aware of the build in certificated stock and the potential for deliveries as FND approaches. For new crop December ‘21, the drought issues in Texas have improved, though are yet to be completely resolved and, with end user consumption positive, we like the long side. We reiterate that Dec ’21 prices in the high 70’s/low 80’s should be looked upon as a “not to be missed” opportunity to secure at least part of a spinner’s forward requirements!
*Please note that we only share CFTC CTO on weekend reports.
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