Despite a nearly 20% drop in prices, the cotton market still has an overwhelmingly bullish consensus. 

Although we speculate with some caution, it is true that there are some encouraging signs. 

• As confirmed by the latest WASDE report and weekly cotton sales, the supply/demand situation is tightening in the US. It is not much brighter for new crop where the reduction in planting area combined with a drop in expected yields, due to the prevailing drought in Texas, is already leading to fears of a reduced production. With this in mind, it is hardly surprising that we are seeing the July / Dec spread narrowing substantially. 
• The grain markets continue to achieve record highs, as does the stock market. The meteoric recovery of the US economy not only explains the strength in the dollar but also favours a more positive business climate moving forward. 
• Import figures for the main cotton markets in the first quarter of 2021 also remain very promising. The market seems to have already priced in an increase in import quotas for China, which may be as much as 2 million tonnes. 
• India continues to sell its crop and stocks but at a slower pace than they had done previously. 
• Pakistan, Bangladesh and Vietnam are still very present in the market, encouraged by supportive yarn prices.

The market has become obsessed with the potentially bullish American and Chinese import and export numbers. However, without wanting to sound too pessimistic, we should not forget the COVID pandemic and the effects of this third wave on multiple economies. Large parts of Asia are entering into strict lockdowns. Europe is also very slow to reopen while the situation in Africa and Brazil is at crisis levels. 

At the same time, we are seeing a steady rise in production costs, particularly the price of chemical inputs, as well as the soaring rates of ocean freight. All this has lead fears of a scissors effect (a drop in the selling price, yet increasing costs of production.) 

There is still plenty of cotton in the market and new crop is still far away. Bullish weather reports and positive chart analysis are a plenty, but what we really want to know is whether global cotton consumption will really be sufficient to maintain high cotton prices. We should not forget that growth statistics are calculated in relation to lows, forgetting this can lead to misleading conclusions.