Reinhard: Cotton Performance In New York This Week Is Mixed.

This week (10.07) New York Stage cotton Mixed performance, the December contract rose 268 points to 104.60 cents, while the March contract rose just 26 points to 100.72 cents.

The cotton market has recovered the position lost since last Thursday, when the December contract fell for the first time to nearly 600 points, and after December, the contract rose to a 900 point rise. This week is characterized by a sharp increase in the price of the /3 contract in December. The December contract was 106 points higher than the March contract yesterday, and suddenly jumped to 388 points today. Market participants were wondering why the December contract jumped sharply while the rest of the contracts fell behind.

Perhaps because the US export sales weekly is excellent (the two market year). Sale The number is 647000 packs, and the situation is beginning to improve, but this should allow all month contracts to join a forward chorus. A more likely explanation is that the buying of call options is huge, leaving market participants unprepared. In particular, hedge funds buy a large number of call options for December contracts.

Given the current macroeconomic environment, it is not surprising that speculators and hedge funds have a strong interest in cotton. Under the current macroeconomic background, almost all commodities are rising, while the US dollar continues to fall. Although the cotton bull market has its own foundation and the supply and demand situation is very tense, the continued depreciation of the US dollar is undoubtedly an important factor.

Today, the US dollar has reached an all-time low against the Swiss franc, the lowest in 27 years against the Australian dollar and the lowest in 15 years against the Japanese yen. Although investors are more in pursuit of these currencies, they enjoy a more solid foundation in trade or fiscal policy, but we also see that gold is high and gold is regarded as the hardest currency these days. In the past 10 years, gold has grown by two digits per year, from $260 / ounce to about 1340 US dollars / ounce.

As gold is both a commodity and a safe haven for investment, gold is becoming more and more popular in such a financial world where debt and deficits are rising and beyond control. The United States is the largest debt country in the world. The total public debt in the United States increased from $5 trillion and 800 billion to US $13 trillion and 500 billion in the past 10 years, while the total debt in the credit market increased from US $29 trillion and 300 billion in 2001 to US $52 trillion and 200 billion. Unfortunately, the current annual fiscal and trade deficits add up to $2 trillion, exacerbated by this problem, and there is no sign of immediate reversal in a short period of time.

Following the financial crisis two years ago, we saw a slight contraction in household and corporate debt, prompting the government to actively promote the scale of its debt so as to keep the credit bubble free from implosion. The deleveraging of family and business departments makes the Fed / government able to print banknotes at the moment without causing too much inflation, but the fast growth of debt to -GDP ratio is not a good sign for the future. The problem is not limited to the United States, though its absolute size dwarfs other economies.

More and more investors realize that printing presses can not solve the current economic problems, because it will eventually destroy the country's currency. Smart money will remain diversified and enter physical assets, such as commodities, aimed at preserving value. This trend is not immediately over. Interestingly, when we talk about the price of cotton or other commodities, the price of gold ounce is not yet close to the highest level in history.

For example, in October 2003 bull market At the peak, cotton is worth about an ounce of gold per pack, and in March 2008, a pack of cotton can buy about half an ounce of gold. Today, believe it or not, a pack of cotton can only buy 0.38 ounces of gold, the highest level in 15 years in nominal terms. When we compare cotton with the Swiss Swiss franc, Australian dollar or yen's 10 year curve, we get similar results. In other words, if we compare today's cotton quotations with the past market, we consider that the denominator has changed and is quite large. This can explain why spot price trading is much higher than at any time in the past and will not cause a stir in textile factories. {page_break}

So, where should we go? Last week we thought that after the market entered the market in the northern hemisphere, the market would form a trading range. However, after seeing the market's performance today, we believe that in the coming days, the market will probably get higher. This is mainly determined by the reaction after the resumption of the 7 day holiday in the Chinese market. However, based on the strong spot prices in various export markets this week, we do not think there will be significant price pressures. In fact, the spot price in the near future has far exceeded the price of the futures market. The recent rise in the futures market may be just a tentative catch up.

However, we believe that the upside down expansion between December and March is groundless because cotton will soon enter the market, and when the December contract enters the notice period, there will be ample supply of cotton. There is a view that the market can not afford to "waste" spot cotton. We think this view is wrong, because no matter how the textile factories need American cotton, there is also a logistics constraint problem, that is, how much cotton can be loaded every week. This means that in the next few months, a large quantity of cotton stocks will be stored in American warehouses, which can be regarded as certified stocks in a short time while waiting for shipment.