November 2021: The spot rate in Karachi remained unchanged during week 45 at Rs 17,5k per maund amid improved trading activity. Polyester fibre was available at Rs 250 per kg
Cotton traders have told that the market has remained stable, with trading volume remaining low beside that the rate of quality cotton has reached Rs 18k per maund. The rate of Phutti is around Rs 8,8k per 40kg.
The price of cotton in the Sindh region was hovering around Rs 14,5k to 18k per maund while in Punjab, it ranged between Rs 16,4k to 18k per maund.
USDA projections in the November WASDE show a very modest downturn in global cotton supply in 2021-22. The new crop world numbers are starting off with less beginning stocks - which is impacting production in certain nations. For example, world stocks for India & Pakistan are at their lowest levels this early since 2006. World production had a strong month-over-month rise of 1.5 million bales, mostly in Brazil +700k, Australia +600k, Pakistan +200k and the US +200k. World consumption was raised 700,000 bales mostly in India +300k, Pakistan +200k, Bangladesh +100k and Mexico +100k. The bottom line is that the stocks don't seem to have a major effect on the price. The world ending stocks were 200k bales higher from last month, but that's basically neutral in monthly adjustments.
Changes to the new crop number in the US, which had some adjustments, were pretty expected. US cotton production is predicted to increase by 200k bales after a nine-pound increase in harvested yield per acre. Production in the past month increased across seven states, with production in Texas being higher than any other state. As in last September and October, the basis for this adjustment was NASS's objective yield field sampling of 595 samples of 40 feet of row. This had counted bolls maturing at different rates excluding small bolls that are often overlooked. There were no changes to U.S. domestic use or exports, so the increase in production went straight to the company's bottom line, reducing ending stocks of raw cotton by 3.4 million bales. Over the last 12 months, this has had a neutral impact on prices.
It was expected that there would be minor adjustments in this month's update so they were incorporated into the normal pre-report surveys. Hence, there is no surprise in a strong bullish move by ICE cotton futures. However, after the report's release on November 9, that is precisely what happened. Why the intraday price rally? The farm media offers speculated reasons as to why crops are rising in price such as inflation and the large amount of people holding short positions. There are a lot of reasons people buy cotton futures. This might be from an additional speculative expectation of uncertain production in the US, but this is likely to fade.
Even sometimes, there can be large price inversions. For example, the ICE Dec’21 contract is nine cents higher than the Jul’22 contract on this day. This condition can be interpreted in two ways. You either have too much of the product sitting idle in the short term, or you are struggling to keep up with demand in the near future.
Our opinion: The market is telling us that these historically strong prices are not likely going to last long.