Though having learned to expect the unexpected, this past week had an even eerier vibe to it.   Despite  only a slight decline in prices, there was an underlying sense it could have been much worse with cotton trading in a wide  range of almost six cents.  Hovering over this market is a failing economy where stresses within the financial system are now compounding  high inflation.  The resulting insecurities  weigh heavy on all commodities , especially cotton which is  dependent  on a confident consumer purchasing its products. May futures closing at 77.83 declined just 30 points, but it was the sixth  week out of the past seven it posted a loss.  December futures declined 74 points settling below 80 cents for the first time in fifteen weeks at 79.51.  

The week began on a positive with markets reacting favorably to the assurance by FDIC   that SVB and Signature bank depositors  would be protected.  Hence, the Dow  had its best day in two months while cotton traded limit up.  However, in keeping with the  old adage where there is one there may be many, Credit Suisse bank reported similar troubles.  The news had greater impact for this institution plays an important role in   global financial markets.   Fortunately,  it was quick to receive  support as well staving off any worldwide banking crisis for now.   Nonetheless, there is an unsettling fear of who  will be the next to come forward. 

The Fed is now faced with a tremendous challenge. In an effort to curb inflation, their  rapid shift from a low interest rate environment  has led to these banking woes. With the Fed scheduled to meet this week we will soon see if this alters their hawkish efforts.    Consumer prices eased somewhat last month,   falling by a tenth of a percent.   However, core prices which exclude food and energy costs , an indicator more closely watched by the Fed, rose by a tenth.  Thus, year over year consumer prices are up six percent, down from 6.4% last month but still well above the two percent target. Not surprising,  considering the overall atmosphere , retail sales fell 0.4% in February, with clothing sales leading the decline at 0.8%. 

Recent export sales  still provide a glimmer of hope for demand.   Current crop sales last week were 233,120 bales greatly exceeding the 75,900 bales a week  needed to meet export estimates. Weekly shipments were also impressive at 275,400 bales wherein an average of 259,000 is needed.  Amidst all the hurdles confronting  demand, the question becomes can we continue this pace over the remaining twenty weeks of the marketing year.   

Where to from here? Not to sound like the grim reaper, but  negative influences  far outweigh any positives at present.   Most at risk are those still holding last year’s cotton. This volume is significant given the  spread of unfixed on call sales to unfixed on call purchases is at its  lowest level in twelve years. The risk-reward for these individuals is not encouraging as  sales pressure from growers will limit any uptick in prices, while the risk of much   lower prices is great considering the macroeconomic climate we  now face. 

As for new crop, there is still a good chance we will see a seasonal bump in prices with crop potential certain to vary as the growing season gets underway.  As always, managed funds will have a big say in the direction prices take. The CFTC is still playing catch up in their reporting, but through the week of March 10th specs appear to be holding a small net short position. Positive changes in the world around us will be needed for them to become significant buyers. In the meantime, with the odds of a recession increasing causing both consumers and businesses to hunker down cotton demand will face extreme pressure.