24.06.2022 \u2013 Away from the din of Wall Street, a major event is underway in the agricultural market. The price of cotton is plummeting. The slump in consumption in the wake of rising global inflation is hitting cotton farmers and mills hard. The looming recession is outweighing the threat of supply shortages from poor harvests.
\n<\/strong><\/p>\nAs it stands, the bull market that has been underway since the spring of 2020 has just been broken. In the Corona crisis, a pound of cotton was going for around 51 cents in March 2020 – this spring we had reached just over 155. In the meantime, we are below 100. However, the bears have to worry about the price gaps that have been torn in the meantime, which you can see in the daily chart. These gaps, opened in the rapid sell-off, will be closed at some point – only when?<\/p>\n
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The deflationary Corona crisis had initially caused prices to crash. Then all the global aid programs kicked in and demand rose. Now the cycle has apparently been turned again: Inflation is raging, a new recession is looming worldwide, the Federal Reserve is raising interest rates, and Europe will follow. Anyone who is afraid of losing their job and whose household budget is being eaten up by inflation, or who has financed their house with a flexible mortgage and has to shoulder rising interest rates, will save – and buy less clothing, home textiles or furniture.<\/p>\n
Impending recession and buyers’ strike<\/strong>
\nThe fate of cotton prices is in the hands of consumers, according to analyst Jeff Thompson of the Autauga Quality Cotton Association, a U.S. marketing association. He judged that the destruction of demand will probably outweigh the losses in production, more on this below. He added that consumption would be hit by rising prices, higher interest rates and the crash in asset values. As a result, he said, consumer sentiment in the U.S. currently stands at 50.2 points, down from 58.4 points the month before – and 85.5 a year ago. Already, he sees a slight oversupply, with the global mill processing rate estimated at 121.5 million bales. However, 121.7 million bales are coming from the fields. And, “It is easy to surmise a significant decline in mill use is very probable given the ominous shadow world economies are casting around the globe.”<\/p>\nSanctions against China<\/strong>
\nHowever, there are certainly bullish arguments for cotton. For example, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect in the U.S. earlier this week, as reported by the Guardian. This law bans the import of cotton from the Xinjang region in northwest China because of the oppression of the Uyghurs. About one-fifth of the cotton on the world market comes from the Middle Kingdom – and 84 percent of it again comes from Xinjiang. Presumably, the goods are purchased somewhere else. However, America is the price-determining market, and here U.S. farmers now have no Chinese competition.<\/p>\nDrought threat<\/strong>
\nThe U.S. lobby group Cotton Incorporated also referred to the drought in the U.S. and other countries: “Too, both China and India are facing a combination of heat and some drought problems. Further, the worlds five largest cotton producing countries are all facing some level of uncertainty about a drought\/heat reduced cotton crop.” We add: It is certainly not entirely altruistic for a producer association to see production losses and, as a consequence, rising prices. Nevertheless, it can be right.
\nOur conclusion: the determining factor for the cotton price is the threat of recession. It is no wonder that the crash in the cotton price coincides with the turnaround in interest rates and the Federal Reserve’s admission that a soft landing – that is, a return to normalcy without a crisis – would be a major challenge. However, massive crop failures could swing the pendulum back. The same goes for a change in sentiment in the global financial market – already some analysts are hoping for an end to interest rate hikes and even for a new quantitative easing, i.e. a renewed flood of money. So you should keep an eye on the real-time news. Bernstein Bank wishes you successful trades and investments!<\/p>\n <\/p>\n
\nImportant Notes on This Publication: <\/small><\/p>\n
The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. <\/small>CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7<\/small><\/p>\n","protected":false},"excerpt":{"rendered":"
24.06.2022 \u2013 Away from the din of Wall Street, a major event is underway in the agricultural market. The price of cotton is plummeting. The slump in consumption in the…<\/p>\n","protected":false},"author":41,"featured_media":18880,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[6],"tags":[],"class_list":["post-18882","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"yoast_head":"\n
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