ICE Cotton gained over 4 cents for the week on the back of spec buying, improved technicals and rising open interest, and the continued rawdown of US cotton stocks through strong export sales (223k overall).
Although domestic basis levels have fallen well off harvest-time highs, the smaller US crop this year is being felt as less cotton remains in producer hands than normal at this time of year.
Index fund selling also wrapped up on Tuesday, and with most of the US out of grower hands already, there was a shortage of sellers to fill the void. Supplies have started to show up in deliverable position against the H4, using the new, easier certification method, but remain small at 50k bales.
Overseas, Chinese December imports came in at a stout 610k MT, Indian prices have firmed, and scorching temperatures and reduced water reserves in Australia are causing some concern about the 14/15 crop.
This could be the peak of bullish news in the cotton market, yet traders could still push the market several cents higher before concerns about Chinese stocks and the competitiveness of polyester return to the fore. New crop Z4 touched 80 cents, and should attract grower selling and increased selling.
This week was light data-wise but the Beige book showed continued modest economic growth in the US. Chinese Q4 total aggregate lending including “shadow lending” in addition to bank loans) came in below expectations, worrying the metals sector and currencies like the Australian dollar.
At the same time, we are probably moving towards the endgame for some commodities bear markets as bargains start to appear and attract growing downstream demand. USD rates have risen but do not look overdone with the 10y Treasury still under 3%, and the equity party continues.
