Day by day the conflict in Ukraine is intensifying on all sides, leading to an increasingly frontal confrontation between the Russians and the Americans. At the same time as, nuclear weapons are being brandished, allies are being counted. Africa, as in the heyday of the Cold War, is becoming an important strategic issue in the same way as India or China. 

At the same time, countries are at best in stagflation and at worst in a recession from which it will be difficult to emerge. Growth has stalled and inflation is soaring back to the levels of the 1980s. With such prospects, central banks have little choice but to stand on the brake. Without destabilising the entire economy, they must urgently stop buying back stocks and bonds and make money more expensive by raising interest rates. 

The banks, after having surfed on the COVID exit with great fanfare, are being called to order on prudential ratios. Indeed, all the banks wanted to take advantage of the windfall effect caused by free money, full employment and insolent growth. Today, commodity prices, especially oil, inflation and the expected fall in property prices, particularly in the USA, are causing fears for the weakest. 

The same situation prevails in the cotton market, where the July 2022 has broken the 150 USC/Lb barrier. However, there is no reason for the market to remain at this level: 

• There is little cotton left to sell before the new harvest. 
• Despite the suspension of import taxes in India, demand remains very limited. 
• Drought fears in Texas, Argentina and Brazil are very present 
• The choice between growing cotton and food crops is largely oriented towards the latter. 
• The skyrocketing price of inputs will force a reduction in the use of these products and thus a drop-in yield throughout the world. 

In fact, all these elements are already integrated in the current prices and cannot for the moment justify the increase because at the same time: 

• The US Dollar is getting stronger and stronger, with the parity against the Euro getting closer every day. For all the industries that do not sell in USD, the cost since the beginning of the year is heavy to bear. 
• Many spinning mills are abandoning purchases because the levels reached are not compensated by a rise in yarn prices. Demand is falling and it seems that China is selling back some of its stocks or resorting to wash outs to cash in the market difference. 

When the physical market and the financial market are uncorrelated in this way, we are entering a zone of great turbulence. This perspective is now supported by the huge position taken by the on-call contracts. Indeed, the alarm bells have been ringing for months and every day that passes brings us closer to the precipice. There is no need to go back over what the margin calls represent for all those who sold July 22, nor over the price to be paid for rolling over the December 22. This is a formidable squeeze on producers, traders and spinners who have been waiting for six months for a decline. The curse is coming and will undoubtedly be very painful as the ICE will continue to rise. 

The coming mismatch between the financial and physical markets will further exacerbate tensions, as shipping cotton has become a daily grind. The freight situation is so complicated that no one can say when this campaign will end and what the consequences of these accumulated delays will be.