Last week, the Federal Reserve raised interest rates by 75 percentage points, exacerbating concerns that the U.S. economy is headed for a deep recession. The December contract fell more than 4 cents. Over the past four weeks, new crop cotton prices have fluctuated between $1.15 and $1.30 per pound. So far, the cotton market has resisted a historical trend of moving in tandem with financial stocks.
At this stage, cotton prices are still consolidating to determine whether cotton supply or demand affects the market. On the supply side, temperatures are extremely high in most cotton-producing areas of the United States. Although new cotton growth has started well in areas with sufficient soil moisture, in the southwest, where most of the planting area is located in the United States, although local planting has almost been completed, the lack of rainfall will limit dryland areas. field production.
Although the abandonment rate of U.S. cotton this year is expected to be much higher than the average, rainfall in May may prevent the abandonment rate from reaching the historical level of 2011. The U.S. cotton sown area report on June 30 will have an impact on U.S. cotton output. A more accurate interpretation. However, the market already believes that this year’s production will be much smaller than the current estimate of 16.5 million bales, and the bullish factors have been priced in. There are still 8.8 million packages in the On-Call contract for 2022/23, which will provide some support for the future.
The ultimate fate of cotton prices will be in the hands of consumers. It is clear that consumption is becoming less elastic in the face of rising prices, rising interest rates and falling asset values. The U.S. consumer confidence index currently stands at 50.2, down from 58.4 last month and down from 85.5 a year ago. This likely led to a 0.03% drop in retail spending in May, after rising 1.7% in April from the previous month. May was the first time in five months that retail spending fell. Gasoline prices have stayed above $5 a gallon on average. In the first quarter of this year, U.S. households lost $0.50 trillion in net worth as the value of stocks and bonds fell. This negative wealth impact and knowledge profile could worsen if a recession prevails, which would certainly weigh on consumer purchasing power.
Currently, global production for next season is estimated at 121.7 million bales, while global factory usage is expected to be 121.5 million bales. Given the impact on the global economy, factory use is likely to decline significantly. Therefore, don’t expect cotton to consolidate for long.
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