– The Chinese Reserve bought zero bales for the last three days running as market prices have been above the Reserve basis price. Yarn demand in China has picked up in terms of volume but not necessarily price with mills there making a small margin.
– Chinese mills are benefiting from the cheapest cotton in the world. On a straight conversion the domestic price equates to 107.70 usc/lb, if we take this back to CIF CMP using a 1% import tax imported cotton would need to be 96.60 usc/lb to compete. Whilst the health of the Chinese mill is to be celebrated we should not expect to see Chinese import demand any time soon.
– In fact, the cheap Chinese domestic price is likely to reduce demand for imported yarn from countries such as Vietnam! A week ago, NY Cotton was trading in the mid 90’s) and now it is 110c/lb. This current spot price will hinder or even stop nearby demand for physical Cotton with foreign country hopes for yarn sales to China being non existent!
– In Brazil, excessive rain at planting, as well as dry and cold periods have hindered plant growth in Mato Grosso causing a loss of 27% in production compared to previous crop with the Sapezal region affected the most. Harvest in the state of Goiás is more than 75% complete and reductions in yield have been confirmed as well as problems with quality after a sequence of climatic problems. Merchants are in some instances having to invoice buyers back as a consequence of producing lower quality cotton.
– The CFTC Cotton on Call report 31 and as of 5th August showed a small draw down in current crop net on call sales of just 147 contracts.
– The total current crop position between Z22 and H, K & N23 stands at a net 62,994 “unfixed” contracts which is the fourth highest for this time of year against a net 98,250 for the same time period last year. Of this position the net unfixed position for Z22 is 37,670 contracts which is the highest for this week of the year but very similar to last year’s figure for this time of year (a net 35,079 contracts on Z21).
– Many unfixed mills will be looking at the week’s price action with concern despite having over 3 months to get fixed! As always a considered plan for fixations should be in place to safeguard against adverse market moves or last minute and costly fixations!
– We would add that this is the main reason that we can see prices shoot higher than are justified by what a mill can sell yarn at, as “end users” get squeezed by the “money”. The story and market move usually ends in a big spike and drop intraday, but the question is when and how far prices can go? What we can be fairly sure of is the squeeze will not be happening after the Z22 expiry as all the pressure is in the spot month and not in H, K and N23.
– This week’s USDA export sales report was the final one for the 2021/22 season. The final report of the season is always a smorgasbord of numbers, suffice to say that, over the three MYs combined total sales added up to 300,700 bales. 2,387,800 bales were carried over i.e. were sold for 21/22 but will be shipped in 22/23, this should come as no surprise to readers of this report where we have long casted doubt on the honesty of some sales reporting.
– Total shipments for 2021/22 came in at 14 million stat bales, which is about ¾ million short of the USDA estimate. There is an expectation that this will be revised up in line with customs figures, which would be just another reason to question the reliability of the market moving numbers ths USDA churns out on a weekly basis.
– The CFTC COT report as of last Tuesday showed that Managed Money (MM) had been small net buyers of 1,066 contracts to take their overall net long to 33,068 contracts. Between MM, OR and NR their overall net long is 37,670 contracts. Unbelievably this is exactly the position of the unfixed “on call” position of the end user against Z22 detailed above!!
– It will be interesting to see if the speculators continue to drive prices even higher in the days ahead noting that many market participants are away from their desks at the present time and can mean the market can move in any direction extremely quickly on low volume! The fund position can easily be increased and is without question a concern to those short of the cotton market at the present time!
– When we look at the big brothers of Soy, Wheat and Corn since they peaked back in May/June and following impulsive moves lower, their subsequent efforts at a bounce are nowhere near as impressive or as volatile as Cotton has been. Charts of all are enclosed below.
– An insightful statistical report will be sent later today to our clients only, comparing seasons similar to this one. The report makes fascinating reading and backs up the final sentence made in today’s report!