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For cotton, a steep correction in demand has been underway for several months. As concerns about the trajectory of economic growth mounted toward the second half of 2022, order volumes collapsed. However, consumer spending did not drop as was feared. Although uncertainty remains for the future, inflation-adjusted U.S. consumer spending has held at levels 25% higher than in 2019.

The trajectory of the global economy looms large. The latest data releases indicate inflation has yet to be cured, which may mean interest rates will have to climb higher. Meanwhile, labor markets have proven resilient, consumers still have savings from the stimulus, and COVID has faded as a pressing threat. Geopolitical developments are unknowable but may prove influential.

There are several potential signals that a turnaround in business conditions could be emerging. In its latest round of updates, the International Monetary Fund (IMF) lifted projections for global economic growth in 2023 and 2024. While growth is still expected to be sluggish, the reversal in the direction of the updates may be notable.

Given widespread reports of a slowdown in mill demand, the decrease to USDA consumption this month could have been anticipated. China is central to global cotton demand, and the continued inversion of traditional relationships between Chinese prices and other benchmarks may signal that a global recovery in demand is not yet underway.

The recent volatility in NY/ICE futures has been attributed to various factors, including short covering in the futures market and import interest from China. The steep increases in early November can also be interpreted as a sensitivity to potential increases in demand for U.S. exports.