Since reaching its year-to-date low in early March, cotton continues on its tear, with prices rising for the fifth time in the last six weeks. At 49.94 cents per pound, Friday’s close on ICE Futures U.S. is the highest in over two months and reflects a 24% rebound from its March low. An improving fundamental outlook is helping to support prices. While global fiber and textile markets still remain weak, signs of life are beginning to emerge, suggesting brighter days ahead. Chinese mills boosted yarn production in March at a double-digit pace to the second-highest level ever recorded. Similarly, output of manmade fiber in this latest month inched to a new high, driven by renewed demand. In the U.S., CCC cotton loan stocks extended their rapid contraction for a fifth straight week, while Chinese reserve procurement stocks still remain withheld from the market as prices have risen. At the same time, plantings in a handful of countries may fail to reach early projections, implying likely lower stocks in the forthcoming marketing year and evidence for higher prices globally.
While we remain bullish for price in the long term, we are hesitant in the near term, owing to prospects for a shorter-term pullback. The USDA still maintains what many market observers—including us—have maintained for some time is an unrealistic forecast for Chinese mill demand this marketing year. Additionally, new U.S. cotton usage data for February suggest the domestic forecast remains overstated. And several technical indicators for the short-, medium-, and long-term increasingly are showing ‘buy’ signals. While we pay close heed to the technicals, the contrarian argument suggests if everyone is long, the time for a correction may be rapidly approaching before the market continues higher.
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