Thread by @CottonZapata

Here a couple of reasons on why ICE #cotton July 23 is moving back to 85 and higher.

@OAcotton, take note.

With much love, #grandma

1/17

On Friday, China's ZCE #cotton most active contract, the Sept 23 futures, closed at life of contract high

2/17

On Friday, the China's ZCE #cotton front month traded at a 1 year premium to the @CottonOutlook A-Index of 4.25 cts/lb, up a cool 35 cts/lb from the lows in the summer of last year

3/17

Why is this relevant? The higher the premium to world prices the higher the economic incentive to Chinese mills to buy imported cotton instead of domestic

What if #grandma says that for the last 10 wks #cotton spinning mills in China are running at close to full capacity?

4/17

Under normal investment patterns in spinning capacity, cotton yarn prices are, for the most part, a function of raw cotton prices.

With ZCE #cotton moving up, ZCE #cotttonyarn is moving up as well, which is + to the supply chain as as a whole

5/17

In March, China #cottonyarn imports where 140KMT, (or about 200KMT of raw cotton equivalent). While still below the 10 year mean of 161KMT, this is one of the clearest signs that with zero-COVID out f the window China domestic demand is normalizing

6/17

In March, China retail sales for garments & textiles where 116.4 billion RMB, a March record high. 10 year chart below, 2023 in bold red. Again, China domestic market is normalizing

7/17

Lets move on to India, the crop that never is.

On Friday, India's MCX #cotton front month contract closed at a premium of 19.12 cents/lb over ICE #cotton July 23, see chart

Why is this relevant? Because India is going to import cotton in the next 6 months, period

8/17

Okay, so where is #grandma going with this?

Simple, WASDE is wrong on the USA balance sheet, by a mile @USDAForeignAg @usda_oce

To start, they are going to adjust the crop lower to the tune of 200K bales, else #grandma is coming over. This puts carry out under 4 mb

9/17

A few facts on USA export sales & ship data through wk 38 (all numbers in 480 bales) before we get to the important part:

USDA exports 12.2 mb
Exports sales shipped + unshipped as of wk 38 is 12.6 mb
So we have 14 wks to go and the export number is already 3% above USDA

10/17

If we add sales shipped + unshipped through wk 38
and if we add domestic mill use for the MY we get to 14.7 mb of use

If we take this number and subtract it from total supply of 18.23 mb (3.75+14.48), we have 3.5 mb available to sell and ship if carry out where to be zero

11/17

But wait, we know carry out will not be zero. well then, what about 2 mb? then we have 1.5 mb to sell in the next 14 wks or 108K bales per wk

So we have unshipped 4.28 mb, we sell 1.5 mb on top, that is 5.8 mb or 414K bales to be shipped a wk. last wk we shipped 420K b

12/17

But wait, again, we always carry unshipped sales to next MY, i.e. the flop over, the roll over, call it whatever. unshipped sales they are

We all have this data, so #grandma is going to be conservative and low ball it down to 500K bales

13/17

Well, then, if we have 3.5 mb to sell, a carry out of 2 mb, and unshipped sales of 500k bales, all we have to do is sell 67k bales a week

67K*14w=938k + unshipped today at 4.28 = 5.22 mb / 14 = 370K bales a week for the next 14 weeks

14/17

#peace, brothers and sisters, #peace

#grandma is not saying or arguing for crazy or a carry out of 2 mb, all that #grandma is arguing is that when the USDA cuts the crop 200k b and we consider the always forgotten concept of current values, USA exports will be 12.8 or +

15/17

And why is this most relevant?

If crop is lowered by 200K bales, and exports end up being 13 mb and not 12.2, the also elusive and equally forgotten concept of ICE July fair value increases from 72 cts to 92 cents

This is why ICE July 23 is going to move up to 85+

16/17

PS - #grandma is leaving A LOT out for sake of size and simplicity and the fact that the fam is awaiting her for dinner at the pub, that is May Day here

So please, no smart-ass replies or she will block you, that it takes her a good 30 min of her time to put this out

The End