On March 2, the three major U.S. stock indexes rose, with the Dow rising by 1.79%, the S&P rising by 1.86%, and the Nasdaq rising by 1.62%. Global commodities continued to rise across the board. CBOT winter wheat futures rose by the daily limit for the third consecutive trading day, the first time since 2008. WTI crude oil futures rose 7.73%, Brent crude oil futures rose 9.12%, and European natural gas once rose nearly 60%. , closing up 38.29%, Lun Aluminum and Lun Nickel continued to hit record highs.
However, in stark contrast to the U.S. stock market and the global commodity futures market, ICE cotton futures suddenly fell sharply, completely deviating from financial and commodity futures. The main May contract once again fell below 120 cents/lb and 119 cents/lb. / pound mark (the intraday low of 118.16 cents / pound), some cotton-related companies and speculators were shocked into a cold sweat.
An international cotton merchant believes that under the influence of factors such as the intensification of the conflict between Russia and Ukraine (talks have yielded no results), the cotton planting area of major producing countries in 2022 and the Sino-U.S. trade relations, and the Federal Reserve’s interest rate hikes or “twists and turns”, etc. Expectations for wide fluctuations, sharp rises and plummets are strong, but in the short term, the long and short sides will still compete repeatedly at the key point of 120 cents/pound, and there is no clear wind direction in the cotton market.
Why did ICE cotton futures plunge sharply after opening higher yesterday, with a fluctuation range of nearly 5 cents/pound? The author believes that there are mainly three reasons:
First, the Federal Reserve’s interest rate meeting on March 15th and 16th is approaching. In order to avoid “stepping on thunder”, funds and bulls have taken the initiative to take profits and close their positions. Interim Chairman of the U.S. Federal Reserve Board Powell said on the 2nd that it would be “appropriate” for the Federal Reserve to raise the target range of the federal funds rate at the March monetary policy meeting. He is inclined to propose and support a 25 basis point increase in interest rates, while most institutions and investment banks , Federal Reserve members and others also predict that interest rates will be raised by 25 basis points in March.
Second, the growth rate of global cotton planting area in 2022 may be higher than the previous expectations of USDA, ICAC and other institutions. Judging from the current feedback, India, Pakistan and some Central Asian countries and African countries are enthusiastic about significantly expanding cotton planting in 2022, while the probability of cotton planting area expanding again in the western and southwestern United States due to drought and water shortage has increased. Therefore, The judgment that global cotton supply exceeds demand in 2022/23 has gradually become mainstream.
Third, China’s contract for US cotton in 2021/22 and 2022/23 may be restricted by multiple factors. As negotiations on the second-phase trade agreement between China and the United States have not yet begun (the first-phase agreement expires at the end of December 2021), the Office of the United States Trade Representative (USTR) released its annual trade policy report on March 1, stating that it is readjusting its stance on China. Trade policy, study all existing tools and possible new tools to deal with China. Sino-US trade will still be full of variables in 2022, and the enthusiasm of Chinese buyers to sign US cotton will be affected.
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