CTZ22 103.85 (+2.23)
CTH23 100.67 (+2.12)
CTK23 98.81 (+2.31)
Zhengzhou CF301 – 14,395 (-70)
Cotlook “A” Index – 122.05 (+0.45) – 7th September
Daily volume – 20,303
AWP – 104.86
Open interest – 211,217
Certificated stock – 4,552
Z22 / H23 spread – (+3.18)
Z22 / Z23 spread – (+21.55)
December Options Expiry – 11th November 2022
December 1st Notice Day – 23rd November 2022
Introduction
– In a holiday shortened week, the market opened Tuesday by suggesting the psychologically important 1 dollar level may be tested. As it turned out the market (short term) bottomed at 101.19 basis the Dec ’22 contract. on Wednesday The market performed strongly today closing up 223 points at 103.85. Time will tell if we have found a level of support or are merely witnessing a counter trend, “dead cat”, bounce.
– Following the flooding, Pakistan has, as was to be expected, emerged as the major buyer over the last week. This has surely come as a fillip to the merchant community as, aside from some price testing enquiry, demand is almost uniformly absent elsewhere!
– Whilst local demand continues to tick along in China with the mills paying a better price than the reserve purchase, there are concerns about the overall macro-situation, in particular with regards to the zero covid policy. Shenzhen and Chengdu, both tier one cities, are currently in full lockdown. We should not fall into the outdated thinking of China simply being the workshop of the world and that the disruptions caused by these lockdowns are simply at a processing level. China is now the third largest consumer of textile products following USA and EU, the continuing lockdowns act as a significant drag on global, end user demand.
– In Brazil IMEA (Mato Grosso Institute of Agricultural Economics) expect the 2023 crop to be a record for acreage and production. With an increase of 10.4% in acreage planted and a return to more “normal” yields after challenging weather conditions this season, IMEA have estimated an increase in total production for Mato Grosso of 21.26% year on year.
– Similar to cotton, copper is often viewed as a bell-weather of the health of the economy due to its presence in many consumer products. Following a rally from it’s 15th July low (the same day as cotton’s low), the red metal traded a range throughout August before selling off on 29th August on macro fears (cotton’s sell off began the following day!!). As can be seen in the chart below, copper has been attempting to form a base over the last few days, it will be very interesting to see if cotton once again follows this pattern!!
– The USDA export sales report will return next week.
– CFTC cotton on call report will be delayed a day due to the US public holiday.
Conclusion
The market has shown its hand last week and EAP believe that any rallies in the Cotton market, up to the 200 day moving average at 105.25 should be sold. We would be surprised to see Z22 reach the 120’s again this season and longer term, 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 and scale up selling into any strength over the coming days will likely prove to be prudent.
Useful links
*Please note that we only share CFTC CTO on weekend reports.
Written by:
Jo Earlam
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