The market again saw strength over the course of the week with Dec closing at 87.92 c/lb, up 204 points. 

The G7 summit took place in the UK and world leaders agreed on a variety of initiatives. These included tackling climate change with more money and technology, a pledge to vaccinate poorer countries against COVID as well as making large corporations pay their fair share of tax. There was also a discussion as to how to confront China for perceived non market policies.

The WASDE report last week was considered neutral to bullish. Carry out in the US is now projected to be just 2.9 million bales by the end of next season. World ending stocks were also projected lower at just 89.3 million with reductions in beginning stocks and an increase in global consumption after lockdowns. The report made very apparent, stocks are getting tight at a time when mills are looking for cotton. 

We believe that the bullish consumption narrative around cotton should be treated with some caution. The potential for further/extended lockdowns as seen in the UK and further inflation will perhaps put a cap on consumption. There is no doubt that consumption has been very strong recently, but we are still operating within a global pandemic with many unknowns. 

In terms of consumption it has been active in nearly all the key markets. As reported previously, the crop in Pakistan continues to get smaller and mills are needing to cover, with WAF, Brazil and Argentinian being on the list. Bangladesh, Vietnam and Indonesia were also in the market over the week. 

In India the government raised the MSP by 3.75% for the coming season. With the important Gujarat elections taking place next year the government is keen to support farmers as much as possible and this increasing MSP is part of that. Consumption in India is at 2.63 million local bales per month, which is historically high and hence local prices remain firm as stocks continue to dwindle. 

It was speculators that drove the market higher over the course of last year and they are back in the cotton market again. Last week they ended as net buyers, reversing their course of being net sellers over the previous weeks. With funds back in the market it can point to further volatility as well as their signal that they see commodities prices moving higher in the weeks to come. 

The euro / dollar has also been relatively volatile over the last few weeks with the Euro strengthening on Friday to nearly 1.21 EUR/USD after the ECB maintained their bond buying program. On Wednesday we shall see whether the FED leave interest rates unchanged and whether their quantitative easing program shall continue. 

The market has rallied considerably over the last two weeks, it seems that the majority of analysts are technically and fundamentally bullish cotton. As Warren Buffet said, Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.