The March contract moved above 70.00 c/lb this week, the first time since May 2019, settling at 70.69 c/lb. 

The catalyst for higher prices over the last couple of weeks has been the improving sentiment between the US and China over the trade war dispute culminating in a Phase One agreement due to be signed in Washington on 15th January. There has been no formal notification for further talks after phase one but the feeling is that sentiment is improving on both sides. 

The positivity of the markets has been disrupted this week by the conflict between the USA and Iran which initially lead to much stronger oil prices and strength in the DOW and other markets. The conflict seems to have deescalated in the short term and oil price levels have come off the highs and markets generally appear to be more stable reflecting a hope that this will be the end of hostilities despite some ongoing rhetoric from both sides. 

The strength in the market has provided selling opportunities for producers around the world especially in the US where growers have taken advantage to hedge more of their production, whilst Brazil has in recent months placed significant quantities of its very large crop into China. Indian cotton is now also the cheapest cotton in the world and is being absorbed well by both sales to regional markets and intervention by CCI. Consequently the large supply is not weighing on the market at present. One of the key short term factors will be the potential volumes of US cotton that could move to China, but these details will not be forthcoming until after the agreement is signed and the written details are released to the world. This signing should be the phase one and we believe that a phase two deal negotiations are ongoing that look at the more complicated aspects of trade between the two countries. 

In the short term the market looks firm with demand returning in many key markets as yarn prices improve and subject to no outside influences (trade war or armed conflicts) we believe the market will remain firm and could consolidate further in the coming weeks. However, on the other side it must be noted that statistically there is a plentiful supply of cotton which in the coming months could start to pressure prices again below 70 c/lb. 

There is a delayed US Export Report and also a World Supply/Demand Report to be issued later today – the export report is expected to confirm continued demand for US cotton globally, while no major changes are expected within the WESDE Report. We therefore remain friendly to the market and see value in nearby long positions whilst considering scale up selling further forward.