ICE cotton hits the limit-up, logic analysis of the longs

ICE cotton futures market hit the daily limit-up yesterday, with Mar contract closing at 100.75cent/lb, up 417 points, and May contract closing at 98.8cent/lb, up 400 points.

Macro level:

1. International crude oil prices rose for two consecutive days. News mentioned that OPEC+ will consider extending production cuts until the second quarter or the end of this year. The alternative products as the crude oil downstream strengthens the rising of both Chinese and international cotton prices.

2. The US dollar index has maintained a weak trend for several days. The market is waiting for important economic data from the United States to be released this week, which may provide new guidance for future interest rate cuts. In addition, some experts believe that potential inflation in the United States is slowing down, which may prompt the Federal Reserve to adjust its monetary policy.

3. The trend of the US grain market provides external support for US cotton.

Regarding US cotton itself:

1. As of Feb 16, unfixed call sales for the 2023/24 season totaled 1.57 million tons, exceeding the future available quantity under the current expected US production. There are rumors in the market of strengthened expectations for a "short squeeze" situation.

2. According to the CFTC, as of the week ending Feb 20, the net long position of ICE cotton rises to 32.28% [(long positions - short positions) / total open interests], with speculators increasing their net long positions in ICE cotton futures and options by 10,214 lots to 67,851 lots.

3. According to ICE, the daily price limits for ICE cotton futures have been expanded to ±5 cent/lb from the previous day's settlement price starting Feb 28.

4. USDA reduced the ending stocks for the 2023/24 season by 20,000 tons to 610,000 tons in its Feb report, a decrease of 320,000 tons compared to the previous season.

5. Technically, after breaking through the long-term resistance level at 90cent/lb, ICE cotton has formed a medium- to long-term upward trend, making it difficult to return to the 70-90cent/lb in the short term.