NYF headed into the 70’s for the first time this year, settling at 71.29 c/lb on the December contract, up 1.37 c/lb in the week. 

The markets will continue to look at the US elections taking place next week. Based on previous experiences, polling numbers can be incorrect, which is especially important now that the lead appears to be narrowing. There is the continued fear of further lockdowns both in the US and Europe. On Sunday France alone reported 52k new cases, a record high. National lockdowns should hammer demand with a potential knock on effect to the cotton industry. 

The negotiations in the US regarding a stimulus package continue to move slowly and now seem impossible before next week’s election. There still remains a high possibility that a stimulus package will be agreed at some point, which will result in further large flows of government liquidity into markets adding to the support. 

The strong move in NYF values were perhaps triggered by limit up moves on the ZCE early in the week. The strength in the ZCE was due to a lower production forecast in China, a ban on Australian cotton and an improving yarn market. However, by the end of the week the ZCE had started to sell off, perhaps from an overbought position. 

The USDA report showed a strong sales figure of nearly 230k bales, with Pakistan being the largest buyer at 93k bales. It seems that ginners in the US are hesitant to make more sales until the qualities of their cotton are known, especially considering the record levels of hurricanes that have hit cotton growers. There is another potential hurricane brewing in the Gulf Coast called storm Zeta, expected to hit the US by Wednesday, with large rainfall and winds impacting areas from Louisiana to Florida. This could certainly keep the market supported over the week. 

On the demand side Pakistan were still active but also with Bangladesh coming in for West African cotton again for nearby shipments. The Chinese have again been enquiring for large quantities of West African and Brazilian cotton, which is primarily for the reserve as they look to add to their stocks. A clip of 50k mt Indian cotton was also sold to China last week. There is no doubt that basis levels of cotton have improved over the last couple of weeks, perhaps highlighted by the COTLOOK A INDEX move which went from 74.65 c/lb to 77.75 c/lb in the week. This is of course primarily down to the market move up but also highlights that even with a market move higher, the flat price level in terms of basis has held strong and improved slightly. 

We continue to see stronger demand from a range of markets. There is also no doubt that crops are getting smaller, the US, China, India and Pakistan to name a few, whilst Index funds and specs continue to go long of cotton futures. Fundamentally we therefore see reasons to remain positive regarding values on NYF, especially with another potential hurricane in the US. That said, any further moves up may be stunted by a US election that could throw up some surprises.