The market saw some more strength this week with the July contract settling at 56.37, up 335 points in the week.  

Lockdowns remain in place globally which is starting to put a real strain on economies. The US unemployed figure is now at 26 million, in the UK retail sales have fallen a record 6% in a month, and many factories remain closed across Asia.  This all said, both the Eurozone and the US economies have pledged more cash injections into their faltering economies, with Europe agreeing 540 billion euros and the US $484 billion, which is on top of the $2 trillion dollars already injected. All this will no doubt have been a contributing factor to the market strength over the week.  

 The other contributing factor is the rumor that the Chinese state reserve could be looking at a large scale purchase of US agricultural commodities, with 1 million mt of US cotton being on the list of what could be bought. This is for now just a rumor and although this should add support, it will not make a huge impact on cotton inventories that are growing rapidly around the world. 

 It is these growing stocks and weakening demand why we do not see prices trending much higher from here. In India the CCI is back buying and could easily finish with 2 million mt by the end of the season, this will feed the local market and therefore we have to assume there will be no import window to India this year. In the US the carry out could be up to 6 million bales and in West Africa where they could still have 1.5 million bales to sell and plenty more to ship. Then on the horizon we have a 2.8 million mt Brazil crop to be consumed, and as factories remain shut or at lower capacity it is hard to see where all this cotton will go, especially in the short term with Ramadan around the corner. 

On a more positive note, the USDA sales showed a net positive figure, but only 15k bales sold. In these tough times this was somewhat surprising and also good to hear that China has been actively buying US cotton over the course of the week. 

 Again Brazil recaps remain in the market as producers look to take advantage of the firmer prices. The issue is getting buyers to pass a bid, we see small pockets of enquiry in Pakistan and some enquiry out of Vietnam but it is very light. Bangladesh, India and Indonesia are all on strict lockdowns with factories closed or running on a skeleton staff. With such large buyers taken out of the market it has become hard to trade and we continue to believe the basis of all cottons will weaken further.  

Fundamentally we are surprised to see the cotton market as high as it is, though history would tell us that NYF are more governed by index funds and economic influences rather than the cotton fundamentals. It is because of all this that we are cautious with future price projections. We feel the market should trade lower, but it is these huge government support programs with large cash injections that are synthetically holding the market up for now. Whether this is sustainable remains to be seen.