Over the past three months, cotton futures market bulls have been fed a steady diet of “nothing burgers,” and March futures prices (CTH25) scored a new contract low on Thursday. Last week’s USDA annual and quarterly supply and demand data was deemed overall bearish for cotton. The agency raised its U.S. cotton crop production estimate by 159,000 bales from last month’s report. It increased cotton yield by 44 lbs., to 836 lbs. per acre. U.S. cotton carryover was increased by 400,000 bales from December. Total use was cut 300,000 bales from last month, with exports down 300,000 bales, to 11.0 million. USDA put the national average on-farm cash cotton price for 2024-25 at 65 cents, down 1 cent from the December report. Meantime, global cotton carryover was forecast at 77.91 million bales for 2024-25, up from 76.02 million bales in December and compared to 74.16 million bales in 2023-24.
While the world supply and demand balance sheet for cotton still leans bearish at present, there are some other early signals the price downside for the natural fiber may be limited at present levels. Here are six things cotton bulls should be watching in the near term.
1. China Is Stimulating Its Economy
The People’s Bank of China recently injected 958.4 billion yuan ($131 billion) of cash into its financial system in daily open market operations – the second highest on record in data compiled by Bloomberg going back to 2004. China’s central bank has been using liquidity measures to expand its support for the Chinese yuan, which has come under pressure from a strengthening U.S. dollar. China’s economy, which is the world’s second largest, has been languishing due to a struggling property sector and flagging steel industry. That forced China’s economic authorities to begin to implement stimulus measures last fall, which should start to kick in early this year. China is a major cotton importer, and better economic conditions there bode well for improved U.S. cotton sales to China.
2. U.S. Weekly Cotton Export Sales Are Improving
On Thursday morning, the USDA reported U.S. cotton export sales of 316,200 running bales (RB) for 2024-25, up noticeably from the previous week and up 71% from the prior 4-week average. China was also a buyer, taking 18,700 RB. Shipments of 224,800 RB were a marketing-year high, up 17% from the previous week and up 56% from the prior 4-week average. It’s going to take continued better global demand for U.S. cotton in the coming weeks and months for the cotton futures market to sustain a significant price uptrend.
3. The Latest U.S. Inflation Data Are Tame
U.S. consumer and producer price reports for December, released earlier this week, showed inflation levels that were not deemed problematic. The Consumer Price Index for December rose at an annual rate of 2.9%. Core inflation (excluding food and energy) saw an annualized rise of 3.2% — just below the expected rise of 3.3%. These inflation numbers prompted a rally in the U.S. stock market and a dip in U.S. Treasury yields. Rallying equities and lower interest rates are bullish elements for the cotton market, suggesting better consumer confidence that is likely to prompt more demand for consumer apparel.
4. Crude Oil Prices Are On The Rise
Nymex crude oil prices (CLG25) this week hit a nearly six-month high. Crude oil is the leader of the raw commodity sector, and its present price uptrend is a friendly “outside market” development for cotton.
5. Grain Futures Markets Are Showing Signs Of Life
Corn futures (ZCH25) prices this week hit a seven-month high. Soybean (ZSH25) futures notched a three-month high. Both markets are trending higher. While the winter wheat (ZWH25) (KEH25) futures markets are languishing at lower levels, there are some early chart clues that wheat futures are close to, or have put in, market price bottoms. Up-trending grain markets are also a bullish outside market factor for the cotton futures market.
6. Market-Sensitive Data Are Coming In March
On the radar screen for cotton traders is the National Cotton Council’s annual meeting Feb. 13-16 in Dallas, Texas, where the council will release its annual U.S. cotton planted acreage survey. That’s one of the major data points of the year for the cotton futures market. USDA’s annual Ag Outlook Forum on Feb. 27-28 will see the agency provide is latest supply and demand estimates for U.S. cotton.
Πηγή: barchart.com