Facts:
- Cotton prices have dropped to their lowest level since the first half of September
- The December contract price has recently fallen to its lowest level since 2020
- The cotton market has recently experienced excessive selling with short positions at a historical high
- The finished 23/24 season in the US was the worst since the 1980s in terms of harvests
- The price of cotton is correlated with the price of crude oil
Trade: Long position at the market price
TP1: 73.5
TP2: 77
SL: 66.4
Justification:
Cotton has been one of the worst-performing commodities this year, linked to limited demand and still high inventories in China. The number of cotton futures sellers in August of this year was the highest in history, which may indicate a contrarian signal when looking at previous similar situations in history. It is worth noting that the past 23/24 season, which ended before October, was the worst since the 1980s in the US. The United States is currently the 4th largest producer in the world, having recently been overtaken by Brazil. It is worth noting that the price of cotton is correlated with the price of oil. If oil currently experiences a larger rebound, it should also be beneficial for cotton due to substitutions.
