Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

Cotton: China’s Economic Reopening, Military Demand Picture New Reality

Published 04/14/2023, 03:13 AM
Updated 07/09/2023, 06:32 AM

Even though {{8851|Chicago Cotton #2} slid by 0.33% yesterday, the commodity outlook remains strong. In terms of Cotton pricing, there is good news coming internationally. China's much-anticipated post-coronavirus economic recovery appears to be real.

The country’s manufacturing index rose again for the third straight month. Likewise, the Saudis announced that they would help Pakistan secure an IMF loan. This could ease their current financial woes and further open trade. According to Reuters citing the U.S. Department of Agriculture (USDA), India's cotton exports are expected to slide sharply for 2022-23 and match imports into the top producer for the first time in about two decades on low domestic stocks among other factors.

All in all, global trade was net reduced by 740K bales to 38.9 million, seeing slightly lighter exports from Australia and Brazil and slightly lighter imports from China (see below) and Turkey. Carryout was upped by 860K bales to 92 million. 

Most importantly, current cotton crop sales recorded at 164,900 bales were down 42% from the previous week, with China and Vietnam being the main buyers. Shipments of 251,600 bales were also slightly below the weekly average.

Deliveries to Pakistan are well behind the pace of fulfilling its total sales commitment of almost 1 million bales. Also, remember, we noted in our previous research note, that due to increased geopolitical instability (read: the conflict in Ukraine) there’s continuously growing demand for newly minted military ammunition, which consumes a lot of non-recycled cotton.

Notwithstanding, the market is still in the state of the short-squeeze. Commodities funds under management remain Cotton net-short, thereby being unable to provide bullish momentum. In addition, the current large cotton crop remains in the hands of growers at prices that will inhibit any significant progress.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

Also, when it comes to the U.S.’s cotton situation, it remains rather relaxed. USDA’s April WASDE balance sheet lifted their cotton export # by 200K bales, reducing carryout by the same amount. That has a 14.3M bales export program earmarked for 2022/23 with a 4.1M bales carryout. The Cotlook A Index up 130 points on April 11 to 96.15 U.S. cents/lb. The adjusted world price for cotton is 69.88 cents/lb, through Thursday. 


These new adjustments of cotton production, global exports and outlook sharply contracted against quoted by the Invezz, which on April 6 expected a jaw-dropping “12% dip amid abundant supplies”. Apparently, that forecast has very little chance to materialize, even though commodity funds are slow to react to new data. This may offer a good chance for the rest to at least close their cotton short positions comfortably.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.