Cotton Prices Are Not Optimistic, And May Fall Below 70 Cents In October/November

New York this week Cotton season Change course and rise again. The December contract advanced 421 points to close at 76.80 cents.

We have seen that in the past few weeks, a tug of war between bullish technical and macro aspects has been launched, and the cotton market has shown a volatile pattern, with the fundamental outlook still quite negative.

For those traders who do not know what will happen to cotton in the world and are directly guided by the graph trend, the recent price trend is quite encouraging. After the USDA released the report, the price fell to a low of 71.59 cents. The market spent several days treading on the water, and then began to rise again. Because the peripheral market was bullish, soybeans and corn hit a record high of 17.40 dollars/bushel and 8.40 dollars/bushel respectively. So far, the market has left a deep impression, which is a sign of the strength of the market. Although the December contract declined slightly in the last two trading days, the December contract closing was still 185 points and 117 points higher than the lowest point of the day in those two days.

In this latest round of rising market, the trading volume has also improved, but so far, the open positions have not increased. In the latest round of rebound from last Friday, the number of open positions of December contracts actually decreased by 146 to 127696. Although the overall short order increased by about 2100 hands, it does not mean that the energy is strong, which makes us believe that the market's rise is mainly due to short covering, some position conversion, and the temporary lack of trade selling in the market.

At present, there is a lack of trade offers, which has a lot to do with time. At present, we are still in a situation of relatively tight supply. Because the existing stocks of the United States have been contracted, the stocks of cotton from other origins can not be supplied at any time (China and India), or the price is relatively high (Central Asia, Australia). This has formed a temporary bottleneck. Under such circumstances, traders are unwilling to sell a large amount of cotton in the future. In addition, at present, there are many uncertainties that make the seller dare not rush to sell because cotton is still in the cotton field New cotton policy In the midst of everyone's speculation, the price of competitive crops soared to a record high.

However, once cotton starts to enter the market, and assuming that there are no unforeseen problems in the weather, we should be able to see the source of unsold cotton soon. In turn, we should create selling pressure, whether in the spot market or the futures market. Take the United States as an example. At the beginning of the year, the inventory was about 3.1 million bales, and the output was 17 million bales. From now on to the next few months, the supply of cotton in the United States will increase to more than 20 million bales, of which only 4.6 million bales are entrusted for export, and 3.5 million bales are needed by domestic textile mills. In other words, there are about 12 million bales of cotton to find a foothold.

Whether or not the unsold cotton supply will become a burden, to a large extent, will depend on how much cotton China imports this year. According to a report, China recently issued 400000 tons of processing trade quotas. However, although import quotas have a supportive effect on the market, the report also mentioned that China will release about 1 million tons of strategic reserve cotton at a price lower than the market price to meet the demand of textile mills and make room for the auction of new cotton collection and storage, which will start next week. Although these rumors have not yet been confirmed, as long as China puts in reserve stocks, it will be a negative for the market, because it is not conducive to imports.

So where are we going? Although technical traders and hedge funds may stimulate the market to rise again in a short time because they see a constructive chart and a more positive macro outlook, the upcoming cotton picking may change the bullish sentiment in market transactions, because cotton picking provides more reasons for selling in the market. Historically, the price difference between cotton and soybean/corn will become the most important factor at some point in the future, but not now. First of all, the cotton market will not be able to face a supply close to the highest level in history (only the supply in 2006/07 and 2007/08 is greater). At present, most of the cotton is still unsold. We therefore expect that the cotton price will fall back within the time frame of October/November and may fall below 70 cents, which will be a long-term market Step forward to build a platform, because we will make planting decisions by the first quarter of 2013.