The cotton market continues to throw up surprises, the technicals on ICE suggest that the market still has upside potential while the fundamentals tell a slightly different story. 

There’s no need to further discuss the unfixed on call sales position, where the fight between the trade and the speculators is currently strongly in favour of the latter. 

On the supply and demand side, the WASDE report of last week didn’t throw up any major surprises. Production forecasts were revised slightly lower, but consumption forecasts were not so reassuring. In any case, the report gives a more bearish tone to the market, but does not suggest we are heading for a major correction at this stage. 

If there was to be pressure on the market then we believe that it would come from two of the world’s largest producers and consumers, China and India. 

In India, a chaotic monsoon has for a long time led to fears of a sharp drop in production, which coupled with a very low carryover could have created an overheating of the local market. The enthusiasm for the new crop is not waning, but fears about the volume produced seem to be fading. From a social point of view, local prices, well above the CCI’s level intervention level in the framework of the guaranteed minimum price, continue to reassure observers of the agricultural world. 

For the "Ancient Kingdom" the situation is much more complex: 

• The state is continuing to intervene in an effort to control the local speculators that has led to the rise in the CZCE by releasing stocks held by the reserve, estimated today at 400,000 tonnes 
• Despite capricious weather and floods, production seems to be on track, although some anticipate a drop in production of around 10%. The great uncertainty is focused on the future of Xinjiang cotton. Will it be exported or, as is increasingly rumoured, will it be confined to the domestic and sub-regional market? 
• The other major question is macro-economic: how can the Chinese real estate market recover from the "Evergrande" episode? At this stage we still fear the extension of a domino effect that has already begun. China's growth has been affected (4.9%) as analysts are now talking about a debt level of nearly 5 trillion dollars. This threat could affect the global economy. 

But other shadows remain on the horizon and are worth mentioning: 

• Global fertiliser prices continue to rise to levels rarely seen before. Urea, for example, under pressure from gas prices, could quickly reach 1,000 US dollars per MT FOB. To give an idea, a year ago it took 55 bushels of corn per ton of urea, whereas today it takes more than 135 bushels. 
• The increase in freight prices and the deterioration of the service that goes with it weakens the entire supply chain by prohibiting the just-in-time delivery that is so important to the industry and keeps the overall CNF costs at worrying levels. 

Far from being anecdotal, these elements contribute to the scissor effect that should concern us in the months to come.-