A glimmer of hope, then new lows

Cotton futures tried to build on yesterday’s rebound by beginning today’s session higher.  In the end, the market fell to new lows on what can only be described as macro-bearishness.  Regardless of what’s going on behind the scenes in the physical cotton world, speculators sold the market down to fresh lows.  Buying by trade to hedge fresh sales of physical bales was simply overwhelmed by speculative bearishness.  Buyers from Turkey to Southeast Asia stepped up to buy bales of US and other origins.  While volumes were reported as modest, it is at least a sign that prices are reaching a fundamental area of value.  To be clear, we saw no new news for the world of cotton that would justify today’s drop in price.

Today’s selling might have included some US producers still trying to fix price, but it was not driver of today’s move.  In fact, it is getting to that time of year when the natural sellers (those hedging US supply) begin to run low, while the mills still have millions more bales to fix for the current crop year.  As in recent years, the CFTC Cotton On-Call report is now showing a huge disparity to support the theory.

Today’s close on the ICE #2 closed on new lows as the US stock market was near its session lows.  As it turned out, cotton closed before the fireworks on Wall Street.  From down around 600 points, the Dow Jones Industrial Average rallied hard in the final hours to close with gains of around 260 points.  So, the US stock market has staged it’s biggest nominal one-day rally as well as the biggest recovery in the last two sessions.  For those bears that went home short of ICE #2 near today’s lows, tonight’s opening could prove a bit dicey.

Today’s  big drop in flat price was accompanied by additional stability in the nearby spreads.  The spreads are no where near their recent lows.  The CTH9-CTK9 is showing the fundamental strength observed anecdotally in the physical markets.


by Andy Ryan


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