Latest News

After three years of drought, significant rainfall finally arrived in West Texas. In certain areas, precipitation was heavy enough to cause flooding. While flooding may have a detrimental impact on some farm operations, the arrival of rain has already caused projections for abandonment to decrease.

There has been renewed concern about 2022/23 production recently. The current focus of attention is India, where arrivals at gins are significantly behind the pace from one year ago. There has been speculation that Indian growers may be withholding volume in hopes of securing better prices, but the breadth of the gap has given root to worry that the Indian crop may end up being smaller than currently forecast.

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.

Price decreases over the past month indicate that demand-related concerns have been winning the contest between the competing storylines involving a weaker downstream outlook and lower production expectations in a couple key cotton-growing countries.

The decline in Chinese prices relative to those from the rest of the world may affect trade in the new crop year. China is normally the world’s largest importer of both cotton fiber and yarn. However, significantly lower domestic prices encourage consumption of domestically grown fiber and should discourage imports.

In the U.S., consumer spending on clothing has been flat for the past year. However, it has been holding at levels that are 25% higher than they were in 2019. If U.S. consumers pull back on clothing purchases, it may hit the market just as retailers have caught up with consumer demand after the onset of the shipping crisis.

The breadth of losses throughout the commodity sector suggests a sea change in investor sentiment for the entire category. The effects of inflation, the withdrawal of stimulus, rising interest rates, and concerns about a possible recession could all be reasons explaining a reversal of speculative bets, and all could be contributors to the losses.

The war in Europe has contributed to the rise in input costs and reduced the availability of crops like wheat and corn. These crops can compete with cotton for acreage and may lend some support to cotton prices.

Most benchmark prices increased over the past month. Chinese prices decreased.

Most benchmark prices increased over the past month. Open interest is shifting out of the May NY/ICE futures contract and into July.

Most benchmark prices decreased over the past month. The most actively traded May 2021 NY/ICE futures contract decreased from 124 to 118 cents/lb. over the past month.