– In another volatile week for Z22, prices moved in a 719 point range between 111.21 and 118.40 before closing the week up 167 points at 117.68. Average daily futures volume was less than half the previous week at 19,083 contracts with options also much less active at 5,955 daily. Calls have traded more actively than puts and volatility remains high at just under 44% and not surprising in view the average daily move of Z22 in the last week has averaged 358 points!
– Cotton has been up 5 of the last 6 weeks and nearly 15% up in the 2 weeks post the 3mb reduction of the USA crop in the August WASDE. Over the same time period Corn is up 10%, Wheat is up 9% and Soy up 6%. All these markets look like they can move a bit further upwards!
– Conversations with many export markets revealed standstill activity in the face of a rising futures market. India, Bangladesh and Turkey have mills either stopping altogether or operating at 25% to 50% capacity in many instances. The Chinese Reserve bought no Cotton at auction this week but in Pakistan widespread flooding is not helping their local crop!
– The “Money” can often railroad what is going on for the spinner as funds add to their long positions in the face of the smallest USA crop in years. In turn our spinner can only look in bewildered amazement at a rising futures market in the face of negative yarn margins and high priced and largely unfixed on call purchases against Z22 and ask themselves “What do I do next?” More on that later!
– On the macro front we are facing an energy crisis in Europe with ever increasing prices eating in to consumers’ disposable incomes. As winter approaches the squeezed consumer will chose to keep the heating and lights on ahead of buying new clothes. In other words, we will continue to see significant headwinds and shrinking cotton consumption.
– At the annual Jackson Hole symposium Fed Chair Jay Powell, gave a hawkish speech in which he stated that, in order to tackle inflation, interests rates would need to stay high for an extended length of time and that is would mean lower economic growth for a sustained period. Crucially, the Chair opined that there would “very likely be some softening of labour market conditions” and “some pain” for households and businesses – the squeezed consumer once again!!
– Somewhat improved crop conditions and rain has come too late in areas of the USA Cotton belt with the potential to hinder fiber quality rather than improve yield. FSA this week reported planted US acreage of 13.315 million acres which is 1.037 million above the June number. Crucial of course will be the extremely high abandonment levels in Texas, but it should be noted that acreage was increased 284,000 acres in the Memphis Eastern region.