Mei Cotton (7.26) Has No Reason To Break Through The 65-75 Cent Interval.

This week (7.26) cotton in New York fell slightly, and the December contract fell 124 points to 71.39 cents.

Earlier this week, Spain and Italy raised market nervousness again, triggering another round of sell-off by fund managers. The whole commodity market was under pressure, including corn and soybeans that had been ravaged by drought.

This week, Spain's debt yield rose to 7.75% in ten years and Italy's yield rose to 6.7%, so the alarm bell rang.

However, it was not long before policymakers responded. The European central bank governor Delaki assured the market today that the central bank will save the euro at all costs.

This means that the European Central Bank has decided to keep its printing machine running at full speed.

Encouraged by this news, traders quickly returned to buy risky assets and the euro.

Obviously, these frequent "risk" events are becoming increasingly uncertain because traders seem increasingly unwilling to respond to bad economic news. They realize that the central bank can and will solve all problems with "paper money", and liquidity will again flood into the market like tide.

Although these central banks' interventions are slow, they will surely change market dynamics, because speculators are more reluctant to make short term stocks and commodities.

Even if the bearish stance may be adjusted for Fundamentals, dealers are starting to be right about boredom and the Federal Reserve and the Federal Reserve partners.

Look at the paradox in the creditor's market, the size of the debt, but the interest rate is at a low point in history.

The Fed is the largest buyer of US bonds, and now the US Federal Reserve is playing games in the US Treasury market, thereby inhibiting interest rates.

The US Federal Reserve currently has more than 1.7 billion Treasuries and easily surpasses 1 trillion and 200 billion of US Treasury bonds held by China.

Although the US Treasury market is the most obvious intervention target of the Fed, traders in other markets are beginning to understand that this increasing liquidity system favors higher nominal asset prices and shorting, and thus may become an ineffective effort.

Today, the US export sales weekly is quite constructive, and the two sales year net sales are 153100 standard export packages.

What impressed us most was that last week 19 markets bought American upland cotton and Pima cotton.

This seems to indicate that the United States

It is highly competitive. Cotton sources from other sources may not be available at any time.

As of July 19th, the United States now sells 13 million statistical packages, of which 11 million 300 thousand packages have been exported.

It is still 12 days from the end of the sales year, so we should be quite close to the current US Department of agriculture's expected 11 million 600 thousand packages.

Assuming that exports will reach 11 million 600 thousand packages by the end of July, there will be about 1 million 400 thousand packages of export sales pferred to the new sales year.

In addition, there are still 2 million 800 thousand statistical packages on the 2012/13 account, which means that there are about 4 million 200 thousand packages of export orders from the new sales year beginning in August, most of which are recent shipment.

In addition to the retention of about 900 thousand bales of cotton for domestic textile mills during the month of August /10, the quantity of these quantities was increased to about 5 million 100 thousand packages, compared with 3 million 300 thousand packages at the beginning of August 1st.

Even if some export sales are still likely to be cancelled, if we do not exaggerate the situation, our final supply may be very tight before new cotton can ease the supply shortage.

This is why the December contract is relatively higher than the March contract.

In addition, the number of certified inventories has decreased sharply in recent weeks, from 132000 packages in July 10th to only 59000 packages today. This fact indicates that there is not much cotton supply in the coming months.

Therefore, the sellers are quite cautious about the December contract, which is correct.

When we observe the current cotton market, we see many places similar to the sugar market, or two sugar markets.

As you may know, sugar trades in two separate futures contracts, the world contract and the US contract.

The reason is that the US sugar market is cut off from world prices through domestic supply and import quotas.

That led to a much higher price of sugar in the United States in decades than the world's sugar price.

Does that sound familiar? What we need to do is shift the US Sugar situation to Chinese cotton. We also have two markets.

China also established a price island through domestic support and import quotas. China's domestic market price is still more than 130 cents per pound, or 50 cents higher than the A index, which is 60 cents higher than New York cotton price.

The link between the Chinese market and the world market comes mainly from imports, whether it is raw cotton or cotton yarn.

This year, China has imported 22 million 600 thousand cotton, which may exceed 23 million 350 thousand of the US Department of agriculture forecast.

By allowing large quantities of cheaper world cotton to be imported, China has thrown a lifeline for its textile mills, and has bought 3 million 100 thousand packages of domestic cotton at the national price of 140 cents per pound to support the farmers.

However, commonsense predicts that this technique can not last.

China can not increase its strategic reserves indefinitely, although China has once again promised farmers that it will buy cotton farmers at a higher price than last year.

We must give up some things, though we are not very clear about what we need to give up.

The reduction in the quantity of cotton imports and the pfer of cotton land to food may be accompanied by some incentive measures to provide reserve stocks for domestic textile mills, which are very likely.

There is a clear new trend that the yarn import speed of Chinese textile mills is high, thus making use of the advantage of cheaper cotton in other places, and the advantage that yarn imports do not need import quotas.

So far, Pakistan and India are the main beneficiaries of this trend. Because of the huge price gap between China and the world market, this trend can only grow stronger and stronger.

We believe that the statistics fully reflect this trend. We will finally see that the amount of foreign cotton yarn used in textile mills will increase significantly.

So where do we go from here? Because China's domestic market is very expensive and China bears most of the world's final inventory, we believe that the situation in other parts of the world is not as bad as it is generally believed.

Yes, there is a lot of cotton supply in a period of time, but we think that the price of cotton in the main cotton producing countries is currently being suppressed.

The price of some traditional cheap cotton producing countries seems to be supported by many reasons.

Pakistan and India benefit from China's yarn imports, while Brazil and Argentina are trying to find more land for soybeans.

Cotton in the United States was basically sold out until new cotton was listed, and Central Asian cotton producers and Australia did not cut prices.

In addition to the outstanding problems in high price contracts, textile mills seem to have operating profits at the current price level.

In the short term, we can not see any reason why the price can break through the 65-75 cents trading range. However, considering the huge price difference between cotton and grain crops, we believe that once the time is close to the opening window of the southern hemisphere, the market will probably become stronger.