Market Report

Weekend Cotton Bullets – 11/09/2022

The September WASDE is out on Monday!

This week marked the death of Queen Elizabeth, who was the British Sovereign for over seven decades. The Queen was a symbol of peace, stability, and kindness for the world. She will be sorely missed. The Queen has passed; long live the King of England.

CTZ22 104.84 (+1.00)
CTH23 101.45 (+0.70)
CTK23 99.28 (+0.71)
CTN23 96.27 (+0.80)
CTZ23 82.97 (+0.65)

Zhengzhou CF301 – 14,465 (+70)

Cotlook “A” Index – 122.40 (+2.25)

Daily volume – 18,805
AWP – 94.92
Open interest – 210,871
Certificated stock – 4,552

Z22/H23 spread – (+3.39)
Z22/Z23 spread – (+21.87)

December Options Expiry – 11th November 2022
December 1st Notice Day – 23rd November 2022

Introduction

• In a USA Labor Day shortened week Cotton traded in a relatively tighter trading range of 481 points between 101.19 and 106.00 before closing 163 points higher than the previous Friday.
• Volume was very similar to the previous week at 25,506 futures daily with options a bit quieter at 5,922 daily.
• The CFTC COT report showed that funds were sellers in the week ending last Tuesday. Managed Money (MM) were net sellers of 3,784 contracts as were Other and Non Reportables. Between MM, OR and NR their net long is now down to 55,713 contracts.
• This remains a substantial long position but less than half what it has been in the past, meaning funds can take the market either way!
• Monday will see publication of the September WASDE. We somehow doubt that we will see the fireworks that followed the publication of the August WASDE when the USDA cut USA production by 3.0mb. Private guesstimates for the report suggest that we may see a slightly higher production figure of perhaps 200k bales and probable lower world demand which once again may be the catalyst for where Cotton prices head to next!

• The most recent consumer and producer price index data showed inflation remains far above the target. The only question about the upcoming FOMC meeting is if the committee will push the Fed Funds Rate 50 or 75 basis points higher at the forthcoming September meeting.
• The latest comments from Jerome Powell and other Fed economists point to another 75-point hike, following the June and July increases that would push the short-term rate to 3.00% to 3.25%. However, the Beige Book and two consecutive quarterly GDP declines that signal rising recessionary pressures could put pressure on the Fed to slow interest rate hikes over the coming months.
• In summary, we can expect lots of volatility in markets across all asset classes as inflation, Fed vigilance, the war in Ukraine, other geopolitical tensions, and other events will make the coming weeks and months a bumpy and treacherous period in markets.

• We have long cautioned the difficulties faced by spinners at the present time and one need look no further than the share prices of Weiqao and Texhong. From time to time we like to show how the shares are performing in an effort to determine the health of the spinning fraternity. We feel that the charts speak for themselves!
• On another note we also feel the oil price is also highly relevant and that too has been a poor performer of late noting it correlates with the polyester price. Again the competing polyester fibre is getting even cheaper!
• The dollar index recently reached a new high at 110.785 but settled at near the 109 level, moving lower since September 2. The big question is whether the move lower for the $ is a change in trend or merely a pause for breath?

Conclusion

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

Jo Earlam

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