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ICE Contract Cotton No.2 Review // End of the Bearish Trend?
We were looking for a trading opportunity in Cotton, which we have been following from ICE Futures since last month. With the USDA (US Department of Agriculture) lowering the world cotton production expectation from 115.29 million bales to 113.81 million bales, we started to look for suitable technical levels for purchasing. When we look at the Supply/Demand balance; We see that consumption expectations decreased from 109.01 million bales to 108.91 million bales, thus stock expectations decreased from 74.51 million bales to 72.39 million bales. The decline in world stocks caused ICE December contracts to jump 1.73 cents, or 2.45%, yesterday. When we look at ICE Cotton No.2 Options, we see that the volume of Call options with a target price of 71.15 for December maturity has increased. Atlanta-based Knight Futures cotton analysts state that we may have come to the end of the bearish trend that has been going on for months. While USDA reduced its production estimates, it also reduced its crop planting estimates from 13.16 million acres to 12.64 million acres. Technically, when we look at the monthly chart of cotton, a few points attract our attention. First of all, its current location, the 70.00 region (+/- 1 dollar), was visited in February 2010. The level, which was tested as a retreat from the first recovery following the 2008 global derivatives crisis, was also tried many times as support before the crisis. Another thing that caught our attention is the 'long black candle' in May and the subsequent 'doji' in June. The fact that these two formations come back to back is perceived as a return signal by analysts performing candle analysis. When we look at the daily chart, we see that the 70.10 level has been tested and a triangle formation has formed on the daily chart. Since June's highest level is 76.15, we may have 2 courses of action. Purchases made at 70.10 levels can be followed up to 76 levels with a stop of 65 dollars. Another is that a stop can be moved to more northern regions by waiting for the break of the 76 level.
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ECONOMY Oct 23, 2023
Cotton: Reopening China's Economy, Military Demand Picture New Reality
Although wool lost 0.33%, the commodity outlook remains strong. Good news is coming internationally regarding cotton prices. China's much-anticipated post-coronavirus economic recovery appears to be real. 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
Read post TRADE Oct 23, 2023
ICE Contract Cotton No.2 Review // End of the Bearish Trend?
We were looking for a trading opportunity in Cotton, which we have been following from ICE Futures since last month. With the USDA (US Department of Agriculture) lowering the world cotton production expectation from 115.29 million bales to 113.81 million bales, we started to look for suitable technical levels for purchasing. When we look at the Supply/Demand balance; We see that consumption expectations decreased from 109.01 million bales to 108.91 million bales, thus stock expectations decreased from 74.51 million bales to 72.39 million bales. The decline in world stocks caused ICE December contracts to jump 1.73 cents, or 2.45%, yesterday. When we look at ICE Cotton No.2 Options, we see that the volume of Call options with a target price of 71.15 for December maturity has increased. Atlanta-based Knight Futures cotton analysts state that we may have come to the end of the bearish trend that has been going on for months. While USDA reduced its production estimates, it also reduced its crop planting estimates from 13.16 million acres to 12.64 million acres. Technically, when we look at the monthly chart of cotton, a few points attract our attention. First of all, its current location, the 70.00 region (+/- 1 dollar), was visited in February 2010. The level, which was tested as a retreat from the first recovery following the 2008 global derivatives crisis, was also tried many times as support before the crisis. Another thing that caught our attention is the 'long black candle' in May and the subsequent 'doji' in June. The fact that these two formations come back to back is perceived as a return signal by analysts performing candle analysis. When we look at the daily chart, we see that the 70.10 level has been tested and a triangle formation has formed on the daily chart. Since June's highest level is 76.15, we may have 2 courses of action. Purchases made at 70.10 levels can be followed up to 76 levels with a stop of 65 dollars. Another is that a stop can be moved to more northern regions by waiting for the break of the 76 level.
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