Cotton Marketing Planner
Dr. John Robinson
Department of Agricultural Economics, Texas A&M University
Cotton Marketing Summary for the Week Ending Friday, January 8, 2021
The week ending Friday, January 8 saw ICE cotton futures continue their relentless upward march through mid-week, before peaking at contract highs and then gliding slightly lower (see graph above courtesy of Barchart.com). Possible influences include an increasingly uptrending Chinese cotton market, surging grain prices, supportive outside U.S. financial markets (including a bottoming U.S. dollar), trend-following speculation, and general financialization of commodity markets. The most-active Mar’21 settled Friday at 79.77 cents per pound, down from Wednesday’s intra-day high of 80.93 cents.
Open interest in ICE cotton futures rose all week along with the higher price settlements, suggesting more new buying. Indeed, the January 5 snapshot of speculative open interest showed over 3,000 contracts of new long hedge fund positioning, plus some short covering. The index fund net long position also increased by almost 3,000 contracts.
Cotton-specific fundamental factors this week included lower export sales (through December 31) in likely response to the New Year’s holiday as well as rising prices. Commercial U.S. cotton demand remains reportedly slower than normal, although better than in earlier months (see here for an oft-repeated official statement “The COVID-19 Pandemic continues to negatively affect cotton demand and disrupt supply chains.”). Certified stocks continued to decrease after peaking in November.
In the near term, ICE cotton futures have found new strength on speculative buying, and apparently recovering foreign demand, backstopped by Chinese Reserve buying. There is also at theory of increased Chinese mill buying in response to 1) available import quota, 2) restrictions on Chinese sourcing of Australian cotton, and 3) potential impacts from sanctioning cotton exports from Xinjiang. But these latter influences remain to be seen.
The long term implications of USDA’s 2020/21 balance sheet are still bearish. The longer term damage to cotton consumption by the COVOD-19 pandemic will surely take many months or years to resolve. I think that the normalization of cotton’s global supply chain and consumers’ willingness to buy more apparel may til Christmas of 2021.