Cong Cotton Company: The US Cotton Inventory Has Actually Been Sold Out.

This week, New York futures venged fiercely. The July contract rose 430 points to 82.51 cents, while the December contract rose 267 points to 79.07 cents.

Before Monday, speculators sold and led to a sharp drop in the market. The lowest point in July was 75.80 cents, but after four consecutive days of decline, the market suddenly rebounded. This morning, the July contract hit a 83.99 cent high and ended at 82.51 cents.

The ICE speculation / hedge report confirmed that a large number of speculative sell-off led to a decline in the market last week, and speculators lost 10. 1; 500 more, 7, 1; 242 short, net speculative selling of 17 1; 542.

Trade is also closing, business is down 4 to 1, 021 more, 21 to 1, 763 short.

Last week, in the sales volume of the contract in July, the textile mills priced cotton close to 900 1; 000 bags, and last Friday, the remaining cotton was slightly higher than the 800000 package.

Last week, the market plummeted, creating opportunities for the strong market this week, because last week global prices dropped to the lowest point, prompting export sales to reach 824. 1; 100 packs, 597 of which were 1, 300 packets sold to China.

This is the best performance of the market this year. If we consider the amount of cotton that has not been sold, then the sales figures are amazing.

Based on the fact that the supply of spot cotton is very small, the majority of sales must come from certified stock. This is almost a foregone conclusion.

Indeed, we see that over the past 5 days, the number of withdrawal certificates has been more than 280, 1, and 000 packages. Almost certainly, there will be more withdrawal of cotton from certified stock.

When we look at the latest US statistics this year, we can see that the total supply at the beginning of this year is 18 million 500 thousand packages, of which 13 million 100 thousand packages have already signed export contracts, and the 3 million 500 thousand package will be digested by domestic textile factories before the end of July. In addition, we believe that at least 800 thousand packages will come from this year's inventory in the 1 million 750 thousand packages shipped from August, and that about 500 thousand of the cotton needed by the domestic textile mill in August /9 will come from the existing stock.

So, as of last week, there were 600 thousand bales of cotton left, but in view of the increase in sales since last Friday, American cotton has actually been sold out.

According to the level of Cotlook A index (94.40N), not only the US cotton is about to be sold out, but almost all countries' cotton prices are now nominal.

MOT and the only qualified bid outside Memphis is Uzbekistan cotton, the price is 98.25 cents.

From the mid 90s cotton situation is very tight, and new cotton can not quickly become cotton mills need to use cotton.

This week, China's prices continued to rise sharply and stocks were tight, causing weather problems in parts of Xinjiang and eastern China, causing panic among textile mills and market participants.

Today, the CC index is close to 118 cents, while the Zhengzhou Mercantile Exchange July cotton contract reached 122 cents, and CNCE delivered more than 125 cents cotton in June.

Traditionally, we are used to seeing that the difference between New York and Zhengzhou futures is 25-28 cents, but this week, the price difference reached 40-44 cents, even higher than that of CNCE. This makes us believe that some savvy traders may find some way to arbitrage between two producing areas.

For example, traders may import American Cotton (certified stock) and release part of their local stock. Then, they may be delivered on the Zhengzhou Mercantile Exchange or the national cotton trading market electronic matching paction (CNCE).

This morning, the US Department of agriculture's supply / demand report confirms our known cotton situation, that is, the inventory ratio is very urgent and may become more intense next year.

By the end of July, US inventories were expected to be 2 million 900 thousand bales, which is expected to fall to 2 million 800 thousand packages in 2010/11, while stocks outside the United States are expected to drop from 49 million 300 thousand packages this year to 46 million 800 thousand packages next year.

Although there may be double dip recession in the financial market, the US Department of agriculture predicts that the global textile mill usage will increase to 119 million 500 thousand bales, up 400 thousand packets from last month's report.

This year, the foreign cotton production gap hit a new high of 22 million 300 thousand packets, which is expected to be 18 million 600 thousand packages in 2010/11, which will be the second highest gap in history.

In time, US cotton production may be slightly higher than the 16 million 700 thousand package forecast this year, but every baled cotton will surely fill the foreign production gap.

So, what are we going to do? This year's cotton is basically sold out, and the certified stock is pferred to China. The July contract becomes a very dangerous and very unstable paction contract.

Tomorrow, Goldman Sachs will enter the final day, and thereafter, the volume of liquidity will gradually decrease, making the short squeeze easy.

We therefore suggest that the remaining July bears should be out of danger, and the textile mills should immediately lock in the remaining sales positions.

Although next year's global output is expected to increase by 11 million 400 thousand bales, if we can believe the prediction of the US Department of agriculture, the output will be even less than 5 million 200 thousand packages of consumption.

Even if the output is higher than the current forecast or the consumption is disappointing, it will not be enough to reverse the tension of the end inventory.

The spot of the distribution channel will be exhausted at the end of summer, and the replenishment of stock will have to wait for a few months.

We therefore believe that there will be no significant pressure on prices until the end of this year.

However, growers may sell the December contract near 80 cents.

We therefore expect that the trading range of December contracts is relatively narrow, and between 76-82 cents, this pattern will continue until we can better understand the supply and demand situation of new cotton.