Source: Mambo

January 11, 2021

Despite the pandemic continuing its upward trajectory and the political turmoil in the US, the cotton market remains unaffected by these outside events with even a bullish sentiment prevailing. 

Bloomberg reported in an article this week how the shipping industry is under pressure from merchants and buyers as shipping lines cancel bookings, lower their capacity and increase their rates at will. Container availability has caused issues for shipping lines and is contributing to delays in shipments and much frustration for those affected. 

In India the CCI continues to aggressively sell their 19/20 and 20/21 crop at a good pace, with 300k bales sold alone on Wednesday the 6th to both to the local market and traders. Indian has been selling well into Bangladesh at very competitive pricing which is in turn putting some pressure on the West African price basis. Local estimates put the crop in India at 35 million local bales with consumption at around 33 million local bales. We will likely see an import window into India over the summer months. 

With regards to Bangladesh there is a requirement for afloat cotton and Indian cotton gives buyers that quick delivery. Mills are complaining that with the lockdowns in Europe and the US the garment orders are incredibly slow which is causing concern. There appear to be financing difficulties in Bangladesh with more and more banks hesitant to extend lines of credit abroad. 

In West Africa there have been successful tenders for old crop, current crop and even 2022 crop as producers look to take advantage of the rise in NYF. Brazil are starting to offer more recaps with business done whilst also getting some 2022 sales on the books. 

In the US export sales were down week on week but still in line with the pace needed to reach the USDA export estimate of 15 million bales. The WASDE report will be released on Tuesday this week and it will be interesting to see how the US production figure is tackled after a Bloomberg survey this week had the US crop averaging 15 million bales. 

Will the WASDE give the bulls an opportunity to see whether their long bets have paid off? The fundamental picture is getting tighter as we see the US, Indian, Pakistan and Chinese crops all reducing in size. Whilst at the same time consumption feels steady, and potentially booming in China when their import quota is released in the not so distant future. 

For the time being, the cotton market is ignoring the negative outside events and is being fueled by the endless cash pumped in through the various stimulus packages, and money printing programs that governments are undertaking to support their economies.

There is still a large unfixed on call position whilst the speculators sit on the long side. With the possibility of a bullish WASDE report on Tuesday then mills may be squeezed further and could be tempted to get some fixations done before the report is released. (Source: Mambo)