Jonny: Why Do Cotton Always Follow The Trend Of Grain?

The fluctuating trend of ICE futures has great influence on the psychology of textile mills. After the price rises, the spot market is extraordinarily calm.

In August 26th, ICE futures showed a sharp fluctuation of around 300 points, with less than 10 thousand hands in volume.

According to the analysis, the reasons for the price oscillation are as follows: first, the retail market has a negative impact on prices; secondly, the degree of hedging of traders is significantly reduced.

After the conversion of cotton futures to electronic pactions, market volume has been greatly affected. Most retail investors began to trade cotton futures with reference to the trend of Chicago grain market.

In August 26th, the ICE futures contract rose to 70.48 cents in December under the strong grain market, hitting the recent top resistance price. But then soybeans and corn fell by more than 25 cents, resulting in a rapid fall in cotton prices. Many retail investors and speculative bulls were unable to liquidate in time, and the December contract fell below 68 cents to stop the decline.

At present, the US cotton inventory is too high, China's demand is sluggish and next year's planting area will be reduced and so on, so that the direction of cotton futures will not be clear.

Meanwhile, the decline in the US stock market has raised the subprime crisis again.

The New York Times's August 23rd report on the simultaneous decline of the US and global economy once again tests the confidence of the market.

However, the global economy has not stopped growing. In the second quarter of this year, South Africa's GDP grew by 4.5%, and Thailand's GDP grew by 5.3%. There are even rumors that the Chinese government will take a series of measures to stimulate economic growth.

It is reported that the government of India is considering a policy that may have a far-reaching impact on the international cotton price - the minimum price of cotton for 2009/10.

India does not act every year, and the lowest support price in the past is limited to some areas.

The India government is considering setting the minimum support price for 2008/09 J-34 and S-6 to 63-65 cents and 73-76 cents (FOB price).

If the price is popularized throughout India, the price of India cotton's main port in Asia is unlikely to be below 79-80 cents, thus laying the foundation for the rise of international cotton prices.

In terms of weather, the monsoon rains in India are still active. Moderate rains in the Middle East of the United States are favorable for cotton growth.

Pakistan's political instability has led to frequent fluctuations in the rupee exchange rate.

In August 26th, the Pakistan rupee exchange rate was 76 to 1 against the US dollar, and domestic spot pactions were active.

Because of the strike of Karachi port workers, textile mills have to pay close attention to replenishment.

Judging from the trend of ICE futures in August 25th, the contract must break through 72 cents in December to reverse the current decline.

In addition, the registered inventory is slowly decreasing, which has dropped by about 100 thousand bales from the highest level. The reason is that the base price has begun to shrink after the fall in the price, and the price of the warehouse cotton has started to lower than that of cotton farmers and cotton traders, which has led to an increase in demand.

At present, our view of the market has not changed. The longer the cotton price stays in the current range, the greater the decrease of planting area next year.

We are constantly hearing about cotton growers' worries about cotton yields this year. Many farmers ask farmers to give up cotton completely.

In addition, early frost in northeastern Minnesota and northeastern Wisconsin may lead to early fears of grain production in the market, leading to a fluctuation in grain prices.

If the yield per unit area decreases significantly, the area of cotton will decrease more.