ICE cotton settled slightly lower this week, closing at 83.11 basis Z3. Growing cert stocks and lower YoY Chinese cotton imports in September prompted bearish headlines that, along with sagging technicals and ideas that the US crop may be revised a million bales higher on the next (November) WASDE report, likely scared specs from the market.
The headlines are exaggerated though as cert stocks simply represent relatively undesirable qualities stopped in July and will be limited, or maybe not delivered at all. And it certainly wasn't a lack of demand holding the market down, as Chinese import demand remains very strong.
If anything, it may be that the US largely can't meet this prompt demand, leading to fewer actual US sales than normal and a de-linkage between Z3 and the physical market – or, in other words, rising basis levels for any cotton, anywhere that is shippable today (such as Chinese consignment stocks and Greek cotton). There is little price discovery beyond Feb 2014 as of today, when the current shortage should b be relieved.
The US Senate managed to reach an agreement at the 11th hour this week to reopen government and avoid hitting the debt ceiling. The House reluctantly came along, and we will start to see missed data releases from the past weeks issued soon, namely September payrolls on Tuesday. Tapering will be delayed and analysts are revising lower their USD estimates in coming quarters, some aggressively.
USD weakness should help global cotton prices, however the impact on ICE is yet to be seen. Chinese Q3 growth came in better than expected too at 7.8%, helping the AUD for one to hold onto recent gains. Unfortunately, the US deal was short-term and we'll likely be forced through several more months of political and economic uncertainty as regards to the US fiscal situation.
