The drop in foreign cotton prices in the past week actually did not surprise the market. The high prices have already reached the time of correction and re-gaining strength, but the price drop has exceeded people’s expectations. In just one week, ICE futures fell from 116 cents to less than 104 cents, a drop of 13%.
After five consecutive declines, the cotton market saw some short-term short-covering and price-setting by textile mills. Late last week, ICE cotton futures finally showed signs of stabilization. Although it cannot be said that the price decline will stop here, at least in the short term, panic has been released. As for the next step, on the one hand, it depends on the changes in the mutant strain and the external macro environment, and on the other hand, it depends on the changing trends of cotton supply and demand under the current situation.
Regarding the former, the U.S. inflation rate reached 6.2% in October this year, which was significantly higher than the Federal Reserve’s 2% target and set a new high since 1990. The International Monetary Fund noted that global supply chain shortages are expected to ease by the second half of next year, but high inflation is likely to last longer than previously expected due to factors such as the Omicron strain. Therefore, the Federal Reserve has reason to pay greater attention to the risk of inflation, and it is appropriate to speed up the reduction of bond purchases and even raise interest rates ahead of schedule.
In congressional testimony from November 30 to December 1, Powell acknowledged that U.S. inflation may last longer than previously expected, and that the Fed will use relevant tools to ensure that rising inflation does not persist stubbornly. Public opinion believes that this is a clear change in attitude, that is to say, the Fed’s interest rate hike is closer to us than previously expected.
As for the cotton market itself, strictly speaking, although supply and demand have not changed this year, the supply chain crisis caused by the epidemic will last longer, and with the large number of new US cotton flowers on the market, pressure from the supply side will begin to increase. , if U.S. cotton shipments cannot be accelerated after the New Year, the market will become increasingly worried that U.S. cotton will eventually be stranded in the United States, forming a real ending inventory. No matter how high the U.S. cotton contract volume is, it will not help, let alone global cotton in 2022. Expectations for a major expansion of planting and production have begun to take hold.
The International Cotton Advisory Committee (ICAC) pointed out in its December report that although Khmer prices will continue this year, there is little room for continued upward growth. The author believes that under the circumstances of tightening macroeconomics and bearish external conditions, the possibility of ICE’s main March contract returning to its previous high or even breaking through it has been significantly reduced. Unless there are major fundamental benefits, the market may have At the top, the upward momentum has obviously weakened.
</p
