Xinjiang Ban
The ban on cotton textile imports from Xinjiang was put into place this week. The US imports some $9B in textiles from China, but there is no accurate breakdown of how much of that is from Xinjiang mills. Even murkier is the amount of cotton in textiles from that specific region. Some merchants opine that origin labels for finished textiles will shift from Xinjiang to mills east of there. And given that China has already bought 4.6 Mb from the US, and is on a pace to surpass 8 Mb, it makes identifying exact source an impossibility. One merchant said it is possible that Chinese mills have accelerated purchases of raw cotton so as to get ahead of any counter measure the gov may take, such as a ban on imports. The WSJ ran a story on this subject, Jan 14, page A10.
Recent weather in Aussie growing areas indicate a normal year, which has been a long time coming. Production at 2.5 Mb is 4x what it was a year ago. NSW has fared a little better than Q, and the month of Dec was kind to the crop.
Macro events hint of a possible "risk off" period, with China locking down 28 M people over a Corona spike, and rising rates in the US. The $ will close today at the highest level in a month, and is up 1.6% off its low. The public is larded up on the long side of commodities, and the short side of the Buck. The Aussie $ and the Canadian $ show signs of reversing, both are considered commodity sensitive currencies.
All 6 major row crops grown in cotton states are at profitable levels. Some, such as soy, show a return of around $250/acre, or about 70% above cost. Cotton does not return that well, but a profit of $100/acre is a gleam in a farmer's eye. Soy is likely to keep all the row crops elevated in price, all the way through critical growing periods this summer. Our "fair price" for soy is something around $16, and price swings around that could easily go from $19 to $13. If the cotton balance sheet is about right (and it hasn't been right all year), price should avg 78c for the rest of year. But so much depends on the $ and the soy market, either side of a "fair" price could be extended. The $ has gotten some indirect support recently by a rise in the 10 year, from 0.5% to 1.15%. Inflation is 1.4%, and the previous major low in the 10 year rate was 1.35%, and it is likely the 10 year will rise to that and test the Fed. This could prompt a bigger correction in the $.
Technicals
Repetitive timing events called for potential highs in late Oct and mid Nov, and highs did occur but they were minor events. The only comparable seen for the high this week is that it measures in the middle of 2 previous moves up. The first leg up was 1375 points, the 2nd was 1301, and this one is 1317 so far. Another measure is to take the extend of the rally from Aug 2019 to the Jan 2020 high, double it, and add to the low last Apr. On the spot chart the target is just above 8000, and on the Mar continuous it is right at 8000. Mar has achieved a slightly higher level than that, but is close enough for comparison.
