The market was steady over the course of last week but saw a small rally on Monday with July closing at 60.06 c/lb, up 200 points in the week. 

US and China tensions have flared up again last week, after China announced new security legislation for Hong Kong, potentially removing their freedom as a finance hub. President Trump was fairly muted in his response, instead saying that the US would remove any preferential treatment for Hong Kong. China has responded this morning by threatening to stop the AG purchases agreed in the trade deal if the US meddles in Chinese affairs. The US also saw huge rioting over the weekend after the death of George Floyd at the hands of a police officer. 

40 million people in the US have now filed for unemployment in the US, many other European countries are also announcing record high unemployment due to the virus. The huge cost of the virus on government’s coffers will no doubt start to be felt, many industries including travel, hospitality, car and even commodities industries have requested bail outs and governments have mostly obliged. This will of course come at a cost and how governments service this ever increasing debt pile will be a talking point. 

The rally seen on Monday was apparently brought about by a large fixation order from the Chinese Reserve, with July and December both 200 points higher at certain points in the day. The USDA sales of last week were muted but this was expected as China had not been as active over the course of the week, though there are reasonable sales of cheap Indian cotton to China as well as other markets. The Indian basis price is incredibly cheap and is bringing the basis of other origin cottons down in order to make sales. The CCI in India still holds 2 million MT of cotton but up until now is asking for a price way above the market. There is to be a change in management at the CCI starting this week which could potentially take them a new direction. 

We continue to keep an eye on the locust issues reported in Pakistan and India. At the moment it is too early in the planting season for this to cause any damage but it could do in time. Pakistan is estimating a crop size of 8 million bales and India is estimating a crop size of 36 million bales (170kg per bale) for new crop. The plantings in the US have also been steady and in line with last year’s rate of planting, though it is too early to say on a crop size there. All in all, there is going to be plenty of cotton for new crop, let’s hope demand can follow. 

With EID now over and markets slowly coming out of their lockdowns we hope to see an upward trend to demand over the course of June, however we still feel that NYF are overpriced relative to the physical market.