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CTH23 82.04 (-2.22)
CTK23 82.27 (-2.12)
CTN23 82.35 (-2.01)
CTZ23 80.08 (-1.50)
Zhengzhou WQK23 – 14,355 (935)
Cotlook “A” Index – 100.80 (-1.30) – 11th January
Daily volume – 35,921
AWP – 72.98
Open interest – 202,477
Certificated stock – 8,900
H23 / K23 spread – (-0.23)
K23 / N23 spread – (-0.08)
N23 / Z23 spread – (+2.27)
March Options Expiry – 10th February 2023
March 1st Notice Day – 22nd February 2023
– Cotton continues to trade its range going back to the beginning of November and would seem to need a change of circumstance to break us out of it. Today’s bearish WASDE (see below), resulted in a loss of 222 pts for the day basis the front month March ’22. March closed at 82.04 and, should we see a follow through tomorrow, could test the 80 cent level and perhaps even the recent lows at 77.50.
– US consumer prices fell surprisingly in December, dropping 0.1% for the month, the first drop since May 2020. For the 12 months through December CPI rose 6.5%, compared to 7.1% through November and a peak of 9.1% reached in June. This news will encourage hopes that the Fed will take a less hawkish approach towards future interest rate rises.
– The USDA released the January WASDE today and caught most of us out by increasing the US crop 438,000 bales to 14.7 million bales. Yield was reported as a record 947 lbs/acre – I’d imagine there are some farmers in Texas that will be particularly surprised by this news!!! US exports were also cut 250,000 bales to reflect the slow pace of export sales and shipments (below).
– Overseas the Indian crop was cut by a million bales reflecting the slow pace of arrivals to date – as we have previously stated we are adopting a more cautious approach towards changing the Indian crop. Along with the above increase to the US crop this reduction was further offset by an increase of 300,000 bales to the Brazilian crop, but it is important to note that this refers to the crop that will be harvested later in this year, not the crop that is currently being marketed and shipped to mills even though it is classed as the 22/23 crop.
– The USDA continue to chip away at global consumption, which we view as a positive, but we also believe that they have more work to do. Global consumption was reduced 846,000 bales to 110.9 million bales. At best this number remains 5 million bales too high and the difference to true global consumption is most likely even wider than that!
– The USDA export sales report based the week ending 5th January showed an improvement upon the previous week, though that is not saying much! Net sales for current crop were reported at 72,600 bales with Turkey the largest market at 19,600 bales. This is still way below the pace needed to reach the USDA’s export estimate of 12 million bales. For the second week running zero sales were made for new crop. Exports of 150,500 bales were reported and, as with sales, this pace is well short of what is required.
– Earlier in the season, many of the market’s more bullish voices were very keen in talking up the coming tightness in the US balance sheet. As can be seen above, this situation looks as if it could turn out very differently, and many of these voices have moved on to fresh justifications for their unchanging opinions.
– The CFTC cotton on call report, based positions on 6th January showed reductions to the current crop net on call sales of 2,651 contracts for a position of 36,106 contracts. This is the 11th highest position for the first week of the calendar year. Interestingly however, we have the second largest number of unfixed purchases on record for this week. The only time the first week of the year had a larger number of unfixed purchases was January 2020 and the H&K20 charts are below for reference.
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!
*Please note that we only share CFTC CTO on weekend reports.
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