Since October, the cotton futures market has shown a strong upward trend, driven by improved economic data and positive news in the cotton sector. In just nine trading days, cotton futures surged by 6.07%. Last month’s G20 finance ministers’ meeting confirmed that major economies will not immediately withdraw from stimulus measures, which has helped stabilize capital flows and boosted market confidence. With continued economic recovery in key regions, investor sentiment has turned more optimistic. Major global institutions now believe the world economy is entering a “slow recovery†phase, providing a solid foundation for a bull market in global cotton.
ICE cotton prices have been on a steady climb. As of October 21, the December contract settled at 67.96 cents per pound, up 10.06% since the start of October, nearly reaching pre-crisis levels. According to the latest CFTC data, as of October 13, both hedging and index fund net long positions have increased significantly. Hedging net longs reached 39,828 contracts, while index funds held 79,566 contracts. This growing long position suggests a strong long-term bullish outlook for U.S. cotton.
Global and domestic cotton production remains stable, and with the improving global economy, demand for cotton is expected to exceed expectations, further supporting price growth. Since mid-September, the purchase price of raw cotton has steadily increased, with some areas nearing 6.6 yuan per kilogram. The price of processed lint has reached around 14,000 yuan per ton, close to the levels seen in the 2003/04 season. Additionally, with the recovery of orders from major textile companies and rising demand in 2010, the State Reserve has limited stocks and control capacity. Therefore, I expect cotton prices to remain strong, with spot prices likely to return to and even surpass the high levels of 2003/04.
According to the latest data from China’s General Administration of Customs, in September 2009, China's textile and apparel exports totaled about $16.752 billion, up 6.72% month-on-month but down 6.98% year-on-year. Apparel and accessory exports were $11.081 billion, up 5.20% but down 8.12% compared to the previous month. For the first nine months of 2009, total textile and garment exports amounted to $121.65 billion, a decrease of 11.2% year-on-year. However, textile exports have shown signs of stabilization, and with a slight increase in the textile industry PMI, the overall performance of the sector has exceeded market expectations.
Data from Wind shows that the main business income of the textile industry has significantly improved. Except for the apparel manufacturing sector, the gross profit margins of textile and chemical fiber manufacturing industries have risen since the beginning of the year. Profitability across different types of enterprises has also increased. The improvement in downstream manufacturing activity and rising order volumes are expected to further support cotton prices.
While multiple factors are driving cotton prices higher, bulls have accumulated substantial profits, so short-term corrections in Zhengzhou cotton may occur. However, with strong fundamentals underpinning the market, any adjustment is likely to be limited. Therefore, I predict that after a brief pullback, Zhengzhou cotton futures will continue to rise and remain on the bullish side.
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