The bullish move on NYF continued over the course of last week as December settled at 69.92 up 228 points in the week. 

We have noted in the last market reports how the rise in values on NYF have correlated with a rise in global markets outside of cotton. Last week, we saw a reversal in this trend. Outside of China, the FTSE as well as the S&P 500 in the US trended lower over the course of the week. The weakness has come about because of the lack of a fresh stimulus bill in the US and the chances of that coming soon seem to be disappearing. The second wave of the virus is now in full swing in Europe and the USA, with smarter lockdowns being introduced across both continents. 

This recent strength in NYF has been precipitated by a changing picture in China. Rains have affected the crop in Xinjian with a reduction in production of around 5% forecast for the coming crop. The rains have further reduced the qualities. With a lack of high grade cotton in the region, a soft ban on Australian cotton imports as well as a ban on Xinjian yarns in many western supply chains, it has all lead to a much tighter picture in China. This has seen China aggressively coming in for imported cotton, in particular US and Brazil and has led to the ZCE climbing higher. Adding to this, China today announced that their economy grew by 4.9% in the third quarter of 2020. 

There are continued production fears in other major crops around the world too. India received huge rains in Telangana and surrounding states over the last few weeks. The extent of the damage is yet unknown but it seems likely that they will have far more lower grades available, grades that the CCI may be hesitant to pay a large MSP for. The hurricane season in the US has never been so active with the extent of the damage yet unquantified, but it seems likely that the WASDE will have to revise their US crop production figure down again. 

We saw strong demand once again from Pakistan over the course of last week. Many analysts are now suggesting that the Pakistan crop could only be 7 million local bales whilst domestic use is at around 10 million bales, and hence their need for further imported cottons. However it has not just been Pakistan but also Vietnam, China and Bangladesh enquiring for cotton and therefore leading to a more bullish sentiment around physical cotton. 

Just a few months ago, with demand completely stagnant we were scratching our heads as to how NYF may ever reach the 70 c/lb level. We are now here, brought about by a combination of government injected cash to prop up global markets and now with a returning demand scenario. We cannot forget that we still have record high global stock inventories, with the CCI alone still carrying 1 million MT of Indian old crop. However, Speculators continue to buy cotton futures with a long position of 5.27 million bales, the highest since September 2018. The sentiment is turning bullish on cotton, with perhaps a move to 72 c/lb now not too far away.