Cotton futures have tumbled more than 50% since their peak in early 2022. Goldman commodity derivatives analyst Hugo Fuentes cited a note from softs trader Eugene Miravete about turning “incrementally bullish” on cotton as signs of weakness in the bearish thesis begin to emerge.
Miravete outlined to clients five reasons why cotton has underperformed since the peak:
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China has been relatively absent from the market. As the world’s largest importer everyone is paying attention and registering the lack of demand.
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The Global balance sheet has gotten marginally looser.
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Much of the market focuses on US numbers, not aggregate US/Brazilian numbers despite a growing percentage of global exports coming from Brazil. Exports demand has rotated aggressively to Brazil, but is now seemingly rotating back to the US.
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While US export sales are slightly ahead of what they seasonally need to be, US shipments are behind and people are taking that as a proxy for physical demand.
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The low vol, consistent momentum to the downside, has led to a near record managed money short reinforcing downside momentum.
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