Why The US Cotton Contract Was Largely Abandoned In Late October

According to the report of the US Department of agriculture, from October 23 to 29, 2020, the net amount of us upland cotton in 2020 / 21 will be 26200 tons, which is 60% lower than that of the previous week. Although China has signed 10700 tons of Upland Cotton contracts, 868600 tons of us Upland Cotton contracts have been cancelled, while the number of contracts cancelled by Bangladesh and Turkey has reached 10000 tons and 5012 tons respectively, significantly exceeding the industry expectation.

However, due to the "four consecutive positive" in the US stock market on November 5, the overnight reversal of Democratic candidate Biden's vote, and the expectation that the US government will issue a massive fiscal stimulus plan after the election, the main contract of ice is still consolidating around 70 cents / pound (the impact of capital transfer is not significant).

In the late ten days of 2020, a large number of cotton trade contracts in the United States will be cancelled as follows:

First, some European countries, such as France, Germany and Britain, have closed their cities once again. As a result, not only the economy, trade and exchanges have been greatly impacted, but also the logistics and transportation will be delayed in a large area. Textile enterprises in various countries have insufficient confidence in the implementation of European and American orders;

Second, over the past half a month, the US cotton basis spread has increased along with Brazil's "double wings" (including shipping date, bonded goods and customs clearance), and the price competitiveness of American cotton has been continuously weakened, and the price difference with Xinjiang cotton has been narrowed, and the price difference with Indian cotton has been widened;

Third, American cotton has already been oversold in 2019 / 20. Some American cotton exporters and international cotton merchants hope to replace delivery with old cotton in 2018 / 19 and low-quality and low-grade cotton in 2019 / 20, but they are rejected by purchasers, and the situation of contract termination through negotiation increases;

Fourth, considering that India's cotton output may reach 38-40 million bales in 2020 / 21, and the inventory carried forward in the previous year exceeds 10 million bales, the Indian government and CCI should pay close attention to selling lint to Bangladesh at a low price. Under the premise of guaranteed supply, it is natural for Bangladesh cotton mills to cancel the US cotton contract;

Fifthly, this year, the main cotton producing areas of the United States have been frequently attacked by hurricanes, tropical storms and large-scale rainfall. International Cotton Traders and cotton mills are worried about whether the grade and quality of American cotton in 2020 / 21 can meet the contract requirements, and the procurement will be suspended before the news is confirmed. In addition, the recent devaluation of RMB, Indian rupee and currencies of Southeast Asian countries against the U.S. dollar has led to an increase in the cost of contracted imports of American cotton, which also disturbs the sales of American cotton.