CTH23 82.58 (+2.14)
CTK23 82.62 (+2.10)
CTN23 82.56 (+2.10)
CTZ23 80.48 (+1.85)
Zhengzhou WQK23 – 14,270 (-35)
Cotlook “A” Index – 99.80 (-0.20) – 4th January
Daily volume – 28,617
AWP – 74.50
Open interest – 198,629
Certificated stock – 8,901
H23 / K23 spread – (-0.04)
K23/N23 spread – (+0.06)
N23 / Z23 spread – (+2.12)
March Options Expiry – 10th February 2023
March 1st Notice Day – 22nd February 2023
Introduction
– Cotton has this week maintained it’s rather unorthodox, recent trading patterns. On the one hand, we remain well within the front month range of, roughly, 77.50 to 90.00 usc/lb, which dates back to the break out of 2nd November (see below chart). On the other hand, we continue to see marked intra-day volatility within this range. Today the lead month March ’23 closed up 214 points at 82.58 usc/lb, in the process regaining most of yesterday’s 270 point loss but, in reality, changing very little.
– The Fed’s December meeting minutes took a hawkish tone stating that more evidence would be needed of easing of inflation before they are confident that the problem is under control.
– Buyers and sellers are returning to the market after the holidays and there are some green shoots of business taking place. Afloat sales have been reported in the Far East and Indian cotton was sold into Bangladesh and China last week on lower prices (see below). Additionally, enquiry seems to be more forthcoming from a variety of markets. One should not get too overexcited by this as mills are still, on the whole, losing money and the volumes involved remain small, but given the dirge of recent months, it is a (baby) step in the right direction.
– The pace of Indian arrivals continues to cause concern. The Indian basis has rebounded, following its holiday period dip towards 1000/H, and is now back closer to 2000/H. In some quarters the delay in arrivals is being attributed to farmers holding back on deliveries in a push for higher prices (influenced by a belief that they sold too early last year and missed the bull run). However, others are now questioning whether this means a lower Indian crop. In recent years, early positive predictions of larger Indian crops have seen estimates revised down as arrivals come in, but for now we would say this still remains a judgement call and prefer to keep our powder dry before drawing a conclusion.
– In the UK, major high street retailer Next has reported better than expected Christmas numbers with full price sales up 4.8%, against their own forecast of 2%. Whilst these results could prove to be an outlier (though Next are about as middle of the road as a retailer can be), it is an encouraging sign as any demand-pull revival in the market will need to originate with the consumer.
– The Baltic Dry Index is now back to the levels of early 2021, signaling a decrease in freight rates from recent elevated levels.
– This week’s USDA export sales report will be released tomorrow, due to Monday’s New Year holiday.
– The CFTC cotton on call report, based positions for the week ending 30th December showed the year ending with net on call sales positions of 38,757 contracts for current crop. This is the eleventh highest position for the final month of the year and, once again, we saw little change for the week with a decrease of just 308 contracts. As market actors return from the holiday period we would expect to see a little more action in this area (it would be tough for there to be much less!!).
Conclusion
The cotton market has found resistance just under 90c/lb basis H23. We maintain that for H23 we see prices in the mid to high 80’s as fully valued and any move for this contract into the 90’s as an outright selling opportunity for the rest of the season ending 31st May 2023. Our bearish stance is based upon a lack of demand which will eventually be addressed by continued monthly WASDE reductions to world consumption. We would not want to be short Cotton long term under 70c/lb but feel a sideways market is likely for the rest of the 22/23 season!
Useful links
*Please note that we only share CFTC CTO on weekend reports.
Written by:
Jo Earlam
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