Photo by Amber Martin on Unsplash

Even though Chicago Cotton #2, CTK23, yesterday on April 12, slid by 0.33%, the commodity outlook remains strong. In terms of Cotton pricing, there is good news coming internationally. China's much-anticipated post-coronavirus economic recovery appears to be real. The country’s manufacturing index rose again for the third straight month. Likewise, the Saudis announced that they would help Pakistan secure an IMF loan. This could ease their current financial woes and further open trade. According to Reuters citing the U.S. Department of Agriculture (USDA), India's cotton exports are expected to slide sharply for 2022-23 and match imports into the top producer for the first time in about two decades on low domestic stocks among other factors.

All in all, global trade was net reduced by 740K bales to 38.9 million, seeing slightly lighter exports from Australia and Brazil and slightly lighter imports from China (see below) and Turkey. Carryout was upped by 860K bales to 92 million. 

Most importantly, current cotton crop sales recorded at 164,900 bales were down 42% from the previous week, with China and Vietnam being the main buyers. Shipments of 251,600 bales were also slightly below the weekly average. Deliveries to Pakistan are well behind the pace of fulfilling its total sales commitment of almost 1 million bales. Also, remember, we noted in our previous research note, that due to increased geopolitical instability (read: the conflict in Ukraine) there’s continuously growing demand for newly minted military ammunition, which consumes a lot of non-recycled cotton.

Notwithstanding, the market is still in the state of the short-squeeze. Commodities funds under management remain Cotton net-short, thereby being unable to provide bullish momentum. In addition, the current large cotton crop remains in the hands of growers at prices that will inhibit any significant progress.

Also, when it comes to the U.S.’s cotton situation, it remains rather relaxed. USDA’s April WASDE balance sheet lifted their cotton export # by 200K bales, reducing carryout by the same amount. That has a 14.3M bales export program earmarked for 2022/23 with a 4.1M bales carryout. The Cotlook A Index up 130 points on April 11 to 96.15 U.S. cents/lb. The adjusted world price for cotton is 69.88 cents/lb, through Thursday. 

Summary of outlook

These new adjustments of cotton production, global exports and outlook sharply contracted against quoted by the Investorsobserver.com Invezz, which on April 6 expected a jaw-dropping “12% dip amid abundant supplies”. Apparently, that forecast has very little chance to materialize, even though commodity funds are slow to react to new data. This may offer a good chance for the rest to at least close their cotton short positions comfortably.

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