Cotton was volatile throughout last week but eventually settled at 86.97 c/lb, down just 46 points in the week. 

Yesterday the oil price took off after OPEC nations were unable to meet an agreement on boosting production. The plan was to boost output by two million barrels per day, but nothing materialized and with no known date as to when those talks will start again. Brent climbed to a two year high as a result. Traditionally higher oil prices lead to higher cotton prices, but we are not operating in traditional times. 

The US economy continues to signal a strong turnaround as last week’s jobs data was again very good, with new weekly claims dropping to a pandemic low. 

On Wednesday of last week we saw the much anticipated June acreage report. The USDA estimates that 11.7 million acres of cotton have been planted which was slightly above predictions and perhaps suggests that not too much ground has been lost to corn and soy. If we were to take an average yield this would see a crop in the US of above 17 million bales, a far cry from a few months ago when the severe drought had analysts predicting closer to 15 million bales. This is of course a preliminary number as we approach hurricane season. 

As the global economy continues to show good signs of recovery, it is perhaps unsurprising that cotton demand remains strong. Yesterday the Chinese State reserve held their first auction of the year with all 9,500 MT sold at prices close to $1.15 / lb. It will be interesting to see if this pace can be kept up. 

The crop in Pakistan is reported to be at closer to 7 million bales rather than the 10 million bales officially predicted. As a result they remain very active buyers for all growths and is increasingly paying up for better grade cottons when they can be found. Despite the lockdown in Bangladesh mills continued to remain operational and were also enquiring for cotton. Traders are more cautious when selling to Bangladesh as this has become one of the hardest destinations to ship to with many liners refusing to serve Chattogram port or at increased premiums. 

India also continues to report strong buying activity with mills turning a good profit. CCI stocks are now down below 2 million bales and the new crop is doing well with 37 million local bales achievable if they have a normal monsoon season. Although the government increased the MSP level it still remains under where the free market would buy, so if the market remains at these high levels we could see Indian cotton trading internationally again as of November, which might put some pressure on the basis of competing growths. 

Based on the cotton fundamentals we continue to feel that the market and basis will be well supported for the coming months. Buying cotton from origin has become increasingly more difficult at a time when stocks are tightening and mills are clearly in need of cotton. Later in the year we will see the Brazil, Indian and US cottons arrive on the market and this might lead to a slightly weakening basis, particularly if those crops are abundant.