This week, more than ever, showed us that the market is controlled by outside influences, rather than cotton fundamentals. The market closed at 84.68 c/lb, down 288 points in the week. 

Fundamentally cotton continues to look strong based on a variety of factors. 

• West Texas has started to receive some rains but they need a great deal more before the planting in Mid-May. It seems inevitable that new crop US production will have to be cut if the drought continues. 
• US sales last week reported their highest weekly sales in 12 months. Nearly 15 million bales have so far been sold for export, local consumption is at 2 million, with beginning stocks around 7 million at the start of the season. The production is at 15 million bales so the balance sheet is getting very tight indeed. 
• China imported nearly 700k MT in January and February this year. This would be a record for cotton imports since 2013. US accounted for 300K MT of these imports. 
• Arrivals are slowing in India and what is left is poor quality cotton as some small import demand is appearing there for higher grades. Globally crops continue to struggle, Pakistan, Brazil and West Africa all continue to report lower productions.

Some are expecting a La Nina to have a greater effect on commodity productions this year and perhaps we are seeing signs of this already. 

Australia has been experiencing their worst flooding in 60 years, with Sydney particularly badly hit. Unfortunately for cotton farmers desperate for rain, this has not been the case as only a small percentage has fallen within cotton catchment areas. 

Away from cotton, the improving COVID situation in the US cannot be forgotten, with the FED revising their GDP growth forecast for 2021 from 4.5% to 6.5%, with 90 Million Americans also set to start receiving their $1400 cheques this week. In China the economy is also expected to expand by 8% in 2021. 

The Covid recovery is however very uneven in Europe as Italy, Germany and France have announced lockdowns, though there is certainly some lockdown fatigue as already evidenced in France. European growth will likely suffer and indeed we saw the oil price drop 10% on Thursday of last week as these European lockdowns will increase oil stocks. The Eurozone is however expecting a 3.9% growth in GDP for 2021, but with the resurgence in COVID this may have to be tapered down. 

In light of the above one might believe that the market will continue in a bullish trend. However, we should not forget that it was the specs that have driven prices higher over the last 12 months, and today the same specs have the power to drive the market lower. 

On Wednesday, Jerome Powell stated that US interest rates would remain unchanged through 2023 and that they expected inflation to remain at about 2% for the foreseeable future. Inflation is usually hedged by buying in the commodities markets and should therefore be supportive. However it is the yields on US treasuries that have caught the eyes of the specs as they continue to rise and hit a 12 months high on Wednesday. Higher yields in these bonds may pull cash out of commodities to roll into a market with good returns and safer risk parameters. 

Predicting where this volatile market may head has become increasingly difficult. The outside events need to be watched carefully, but the feeling is that this market is fundamentally long term bullish despite a short term correction.