A lot has changed in the cotton market since our last market report, December is now trading at 93.50 c/lb level, and last week Dec touched 97 c/lb which would have been a 10 year high for the front month. 

What have been the reasons for this strength in the market: 

• Demand has been strong from a variety of markets, Pakistan most notably. Demand at this point is probably outweighing supply. 
• The August WASDE report put the US crop at 17.3 million bales, despite many believing the number should be closer to 19 million bales. We are however entering the Hurricane season so these estimates can be altered dramatically. 
• Financial markets continue to remain strong with both the NASDAQ and S&P 500 continuing to post record highs 
• China has finally stepped into buy US cotton, with the USDA reporting last week 160k bales purchased and 125k bales the week before. This had been long awaited and created a stimulus on the market. 
• Unfixed on call sales are now reaching lofty highs, currently close to 15 million bales, adding fuel to an already heated market. 
• The Chinese state reserve has sold out at every auction since the beginning of their sales starting on July 5th. They have now sold 321k MT total since the auctions began at an average price of 126 c/lb.

As an addition to the above we should look at prices in local markets. In Pakistan a 1.1/16 cotton is currently trading at well over 1000 on ex gin, highlighting why mills there continue to look for imports. In Brazil mills are also paying close to 1000 on delivered, explaining why it is perhaps so hard for merchants to buy cotton from producers. These prices give a snapshot as to strong demand for cotton and why the market has remained in a bullish trend. 

We should also look at what risks lie ahead. Notably we are still in a global pandemic. In the US they are now reporting close to 200k COVID cases per day and 1k deaths per day. Vietnam, Australia and New Zealand have entered into very tough lockdowns as they continue to struggle with the delta variant. China too has entered some major cities into lockdown’s, though with strong draconian measures it appears that China is now starting to bring this under control. 

The shipping industry is in turmoil. Bookings are made and then cancelled. Empty containers are said to be available but they are not. Voyage times are taking up to 4 months from West Africa. Vessels arrive in ports but then have no space to take their allocated containers and prices for containers are continuously going up. The end should be in sight, but realistically we just don’t know when that will be. 

We mentioned that the WASDE reported a crop size of just 17.3 million bales in the US. This estimate has come under scrutiny due to the limited field visits and many wonder whether this number will ultimately be corrected upwards, which we shall look out for in the next September report. 

The world is slowly starting to see the end of the pandemic as vaccines continue to be rolled out, we spoke about pent up demand after lockdowns and this certainly seems to be coming true. This demand has been evident in the cotton market and has no doubt been a contributing factor in the markets continued rise into the 90’s. For how long will this pent up demand last, can we reasonably expect it to continue well into next year? It is very hard to say at this point but we feel it might wane before the end of the 2021. 

Prices are trading in the 90’s with many analysts excitedly talking about the possibility of the much coveted $1/lb. History would tell us that prices never remain too long in the 90’s and with outside events including COVID and the terrible events of Afghanistan there is plenty to keep our eyes on for a correction.