Market Observation: ICE Commodity Index Factors Expect A Series Of Fluctuations In Cotton Market

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ICE 12 month cotton fell below 80.00 cents/pound this week (from last Friday to this Thursday), lower than the long-term average. The price trend of cotton market this week is mostly related to technical factors. Commodity index funds have begun to roll over their positions, which is a major reason for selling this week. The weakness of China's domestic cotton price, the slight uncertainty of the Federal Reserve's interest rate decision this week and the continued geopolitical tensions also added pressure. The cotton price on Thursday was still far below the average level, but a strong export sales report did provide a small boost to the cotton price on that day. By the week of November 2, December cotton had closed at 79.80 cents/pound, down 479 points from the previous week. As index funds continue to roll over their positions from December to March, daily trading volume is expected to remain strong in the coming week. Since last Thursday, the registered inventory has increased by 7753 packages to 78459 packages, while the position has increased by 694 to 237088.

For most of this week, the stock market was under pressure, and the market waited cautiously for the Federal Open Market Committee (FOMC) to release its decision on interest rates. As expected, interest rates remained stable, and some people predicted that interest rates might rise. Traders still expect to cut interest rates by the middle of 2024, but the Federal Reserve did mention that this is not in their near-term plans. The stock market closed higher this week, partly due to the continued suspension of interest rate hikes and the optimism provided by the strong 3Q earnings report. Crude oil prices also fell this week. Although some of the decline was recovered before the weekend, the price decline increased the pressure on the cotton market. The US dollar fluctuated in both directions this week, but eventually fell due to the news of the Federal Reserve and the increase in the number of people applying for unemployment benefits for the first time.

The export sales report showed an increase in demand for American cotton for the second consecutive week. By the week of October 26, US exporters had sold 457100 bales of upland cotton and 25800 bales of horse cotton, both of which hit annual market highs, and sales were far higher than the normal level in the same period. This week, China took the lead in becoming the largest buyer, ordering 324000 bales of upland cotton. Mexico is the second largest buyer, ordering 108200 packages, followed by Peru (11200 packages), South Korea (8400 packages) and Vietnam (7000 packages). The continued stability of prices and recent International Cotton Association (ICA) trade activities seem to help boost US cotton demand. As more cotton enters the market, export shipments reach a more seasonal pace. This week, 132200 bales of upland cotton and 2600 bales of horse cotton were exported.

West Texas, Oklahoma and Kansas experienced a cold front last weekend, bringing low temperatures, which indicates that the growth season will end. It is expected that the next week will usher in unusually warm temperatures, but there will be little rainfall, which will enable the whole region to resume harvesting. As of October 29, 49% of the crops had been harvested, and the harvest progress was fast. This situation may change in the crop growth report next week, because the recent humid conditions have led to the stagnation of the harvest in many areas of the cotton belt.

There will be a series of activities in the cotton market next week. The largest commodity index fund will be extended next Tuesday. The USDA's monthly supply and demand report will be released on Thursday, and December options will expire on Friday. It seems that this is not enough. Traders will continue to pay attention to the weather and export sales reports to understand whether the recent price decline will continue to indicate an increase in demand for American cotton.