Last week (February 21-25), the sudden outbreak of military conflict between Russia and Ukraine caused a huge impact on the global financial market. As the war progressed, international crude oil, grains, metals and other bulk commodities surged. ICE cotton futures followed the ups and downs of the external market. As of last Friday, the main May contract reached another level to 118.63 cents, down 2.53 cents in a single week. points, the weekly line fell for the third consecutive week.
In a comment on February 14, the author believed that the military actions of the United States and Russia on the Ukrainian border have attracted market attention. If the situation develops beyond expectations, anything may happen, and the geopolitical situation may become a “black swan event” this year. Just days after the article was published, the Russo-Ukrainian war broke out. The Ukraine crisis has brought risks to global energy and food, causing international oil prices and grain prices to reach new highs. It has also had an impact on the global economy, trade and retail consumption, and there is a risk of a decline in cotton consumption. At the same time, safe-haven funds have pushed the U.S. dollar index up sharply, and the cotton market will also be under pressure. With a new round of rising inflation, it seems more likely that the Federal Reserve will raise interest rates in March. Therefore, the current military conflict is obviously negative for cotton prices.
Last week’s U.S. Agricultural Outlook Forum made a preliminary judgment on the situation next year. Global cotton production is expected to be 124 million bales, a year-on-year increase of 3.2%, the highest level since 2017/18. Cotton consumption is expected to be 126.5 million bales, a year-on-year increase. 1.7%. Global ending stocks fell by 2.5 million bales as consumption exceeded production. Nonetheless, the average Kotruk A index price for 2022/23 is expected to fall 30 cents from its highs to 95 cents/lb. The U.S. cotton area is expected to be 12.7 million acres, a year-on-year increase of 13%, much higher than the 7.3% forecast by the NCC. The production is expected to be 18.2 million bales, a year-on-year increase of 3%. The export volume is expected to be 15.5 million bales, and the ending inventory is expected to be 3.6 million. packages, an increase of 100,000 packages year-on-year. From this point of view, the main theme for next year is an increase in cotton production and a fall in cotton prices, and the mid- to long-term trend is not optimistic.
According to the U.S. cotton export weekly report released by the USDA, U.S. cotton exports last week were better than expected. The U.S. upland cotton contracted volume this year was 56,000 tons, a month-on-month increase of 56%. The contracted volume for next year is 49,500 tons. The total contracted volume of all cotton exceeded 100,000 tons. U.S. cotton shipments also increased by 39% month-on-month, setting a new annual high, which brought some support to the market under the shadow of the war.
Despite this, the current main factor affecting the market is still the situation in Ukraine. Some traders are worried that the overall consumption of goods will decline. This psychological impact may be difficult to eliminate in a short time. The recent trend of cotton prices depends on the direction of the Russian-Ukrainian military conflict. According to the CFTC position report, funds continued to reduce their long positions in cotton by 3,000 lots last week. As the Ukraine crisis continues to affect market psychology, fund selling may be difficult to stop in a short time.
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