Cotton: Reopening China's Economy, Military Demand Picture New Reality

The country's manufacturing index rose again for the third month in a row. Likewise, the Saudis announced that they would help Pakistan get an IMF loan. This could ease their current financial woes and open up trade further. India's cotton exports are expected to fall sharply in 2022-23 and match imports to the largest producer for the first time in nearly two decades due to low domestic stocks, among other factors, Reuters reported, citing the US Department of Agriculture (USDA). .

As a result, global trade fell by a net 740 thousand bales to 38.9 million; Exports from Australia and Brazil were slightly lighter, while imports from China (see below) and Turkey were slightly lighter. The transportation amount was increased by 860 thousand 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 have fallen far short of meeting the total sales commitment of approximately 1 million bales. We also mentioned in our previous research note that due to increasing geopolitical instability (see: conflict in Ukraine) the demand for newly printed military munitions is constantly increasing, which in turn consumes a lot of unrecycled cotton.

Despite this, the market is still in a short squeeze. Commodity funds under management remain net short of Cotton, thus failing to provide bullish momentum. Moreover, the current large cotton crop remains in the hands of producers at prices that will prevent significant progress.Also, when it comes to the US cotton situation, the situation is quite comfortable. USDA's April WASDE balance sheet increased cotton exports by #200k bales and decreased transportation by the same amount. This has an export program of 14.3 million bales earmarked for 2022/23, with 4.1 million bales transported. The Cotlook A Index rose 130 points to 96.15 US cents/lb on April 11. The adjusted world price of cotton is 69.88 cents/lb through Thursday.

These new adjustments in cotton production, global exports and the outlook have contracted sharply, with Investorsobserver.com quoting Invezz reporting on April 6 that it expects a jaw-dropping "12% decline in a supply glut environment." It appears that this prediction has little chance of coming true, although commodity funds have been slow to react to new data. This may offer a good chance for the remaining ones to at least cover their cotton short positions comfortably