CTZ22 85.16 (-3.33)
CTH23 82.73 (-3.12)
CTK23 81.33 (-2.93)
CTN23 79.40 (-2.59)
CTZ23 73.56 (-1.53)
Zhengzhou CF301 – 13,360 (-10)
Cotlook “A” Index – 106.42 (-2.65) – 29th September
Daily volume – 35,279
AWP – 88.88
Open interest – 220,793
Certificated stock – 923
Z22 / H23 spread – (+2.23)
Z22 / Z23 spread – (+11.60)
December Options Expiry – 11th November 2022
December 1st Notice Day – 23rd November 2022
Introduction
– The market continues to tumble, today’s low of 85.00 and close at 85.16. basis the lead month Dec ’22, puts us within touching distance of the seasonal* and life of contract low of 82.54 dating to 15th July. In fact, given the intensity of the recent down move one could not rule out seeing a new low before the week is out!!
*assuming a season starting June 1st and therefore including lead months Z, H, K & N of the same crop year.
– China will break for the Golden Week holidays next week and, when they return, harvesting will not be far away. With the approaching new crop and not insignificant stocks of unsold Xinjiang cotton remaining, prices have been falling and now stand around 14,800 RMB/MT (93.25 usc/lb). As a result of the price drop deliveries to the State Reserve have begun again this week after a long period of inaction – though on lower volumes. Total deliveries now stand at 60,600 MT with no end date yet to be announced for the reserve purchase.
– Global mill demand remains on life support. Pakistan has been the one recent bright spot of late, there is still demand from this market, but this is now tailing off somewhat. Many of the immediate supply gaps brought about by the recent catastrophic flooding have now been filled and mills are returning to their focus on the poor demand outlook.
– In Brazil ABRAPA have reduced their estimates for the 2022 crop to 2.5 MMT. For 2023 crop current estimates are at 3.1 MMT with acreage predicted to increase 9.3% year on year. Whilst this is an encouraging number it is worth noting that the original estimates for the 2022 crop were 2.8 MMT and were reduced as adverse weather impacted on yield – in other words, there’s a long way to go before we see 3.1 MMT harvested!!!
– Hurricane Ian has made landfall in Florida causing widespread flooding, damage and reported loss of life. The predicted path (below) will take it past the major Georgia growing regions but impact on the Carolinas and the open crop there.
– The USDA export sales report dated the week ending 22nd September showed a drop from last week’s already low sales. Net sales of 30,200 bales included total cancellations of 21,700 bales, with Turkey alone cancelling 13,500 bales. The largest buyer was Pakistan with 32,400 bales. For new crop net sales of 41,500 bales were reported, again with Pakistan as the largest buyer of 20,000 bales. Exports of 187,900 bales were reported.
– CFTC cotton on call report, based positions for the week ending 23rd September showed mills unsurprisingly drawing down net on call positions for current crop. Positions were reduced 2,364 for current crop to 65,972 (the fifth highest on record for this week of the year), with the Dec position reduced 3,592 contracts to 30,534. With the ongoing sell off we would expect to see further reductions in next week’s report, though many mills may be stepping back and hoping for lower prices to come.
Conclusion
The calamitous drop in Cotton in the last few weeks has forced a slight change to our viewpoint. We maintain that Cotton rallies should be sold but doubt the spot price can move any higher than the 93 to 98c/lb levels on any bounce. A move into the 100’s would be surprising unless end user demand returns in earnest which we seriously doubt! EAP remain of the belief that the 22/23 season will prove to be an inverted one, with the final low at the end of the season. Scale up selling from 90c/lb and above over the coming days (were we to see it) is likely to prove prudent.
Useful links
*Please note that we only share CFTC CTO on weekend reports.
Written by:
Jo Earlam
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