In the first week of March, ICE cotton futures jumped up and down under the influence of the Ukraine crisis, and their erratic and violent fluctuations left investors at a loss. When the Russia-Ukraine crisis triggered a new round of inflation in energy and food, the Federal Reserve recently made it clear again that it would start raising interest rates as planned in March, and the US dollar index accelerated its rise. The main May contract of ICE futures fluctuated sharply that week, closing at 116.42 cents/pound on Friday (March 4), down 1.86% in a single week.
Since the beginning of February, ICE cotton futures have been in the process of downward revision. Since the beginning of February, cotton futures have fallen by 6.66%. Foreign analysts said that large funds are now cautious about continuing to buy cotton, and the net long position in cotton futures has declined for the fourth consecutive week. Compared with the recent strong trends of crude oil, grains and metals, the current cotton trend is obviously weak. The main reason is that the sharp increase in energy and food prices may have an impact on cotton demand in the later period, and related sanctions will have a negative impact on the post-epidemic situation. A pall has been cast over the global economy and trade.
As commodities begin a new round of gains, inflationary pressures are increasing again. Data from the U.S. Department of Labor last Friday showed that 678,000 U.S. non-farm jobs were added in February, far exceeding market expectations of 440,000, and the unemployment rate was also lower than market expectations. The Federal Reserve has made it clear that although the Russia-Ukraine conflict threatens economic growth, it will still consider starting the process of raising interest rates as planned in March. The recent strength of the U.S. dollar has made the cotton market quite fearful.
Nonetheless, as the grain market rebounds strongly, many analysts are beginning to wonder whether the recent NCC U.S. Cotton Planting Intention Survey and the U.S. Agricultural Outlook Forum’s forecasts for next year’s cotton acreage are still reliable. Due to the sharp rise in soybean, wheat and corn prices, cotton acreage may not be as large as expected. When the planting time comes, it is difficult to say whether cotton will still maintain its competitive advantage as it did in the previous two months. In the past two months, drought in the main producing areas of the United States has supported the December new flower contract to rise by more than 10 cents. Although the supply and demand situation in the new year has now been outlined, the outside world is more concerned about the weather in the later period. The planting area is one thing, but the yield is another. As for the impact on consumption, there is currently no real evidence. Moreover, Russia and Ukraine are not major consumers of cotton and textiles. There is obviously no need to worry too much. As long as the crisis in Ukraine does not further expand, the impact on the cotton market will gradually fade. .
From the current point of view, although cotton prices have fallen to a certain extent, the long-term technical upward trend has not changed. This downward adjustment should be a correction to the previous excessive rise, and the market is far from experiencing a panic decline. Looking back at the price recovery that began in early 2020, there have been only two or three major corrections in the cotton market in the past two years, and each time was about a month. This price correction began in early February this year and has been a month now. The adjustment in cotton prices has also provided a good opportunity for textile mills to replenish inventory at low prices. Funds should also reduce the impact of high positions in the process. burden. With market risks gradually digested, the cotton market is expected to stabilize.
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