Cleveland on Cotton: Inflation Worries Smash Price Support

    Photo: Josh McGinty, Texas A&M AgriLife

    The 1990’s saw a Louisiana man become famous for coining the phrase, “It’s the economy, stupid.” In fact, James Carville’s saying resonated such that he was credited with the election of Bill Clinton to the Presidency of the United States as, day after day, Carville hammered home the phrase.

    No doubt today’s economy can revisit the slogan as the U.S. is facing its toughest battle in 50 years with inflation, rising interest rates, and a declining gross national product. In context with the cotton industry and the cotton market, industry traders, mills, retail outlets, and growers are all facing daily problems related to the question, “Do I buy (sell) today, or do I wait to another day?”.

    Of course, that question is with traders most days, but the whipsaw action of the economy and the cotton market itself has left most traders stunned. Mills suggest they face more uncertainty than they have ever known.

    Remember, all markets find great difficulty in dealing with uncertainty. Uncertainty portends lower prices. Very little seems rational, and that feeling does not bode well for higher prices. The meaning: cotton prices will do well to hold where we are. The bottom has already fallen out. It can go a bit lower, but most of the dirty deed has been done.

    The market has smashed below all critical price support, even while we have preached the considerable production issues of the year. Granted, we have complained aplenty about a disappearing demand and the limitation on any price advance. The point is that prices have fallen – even below the dollar market now.

    While I preached to you about it on numerous occasions, it is now your turn to tell me “It’s the economy, stupid.”

    Keep the patience. Cotton price fundamentals are not particularly weak. Demand is weak, but production and ending stocks both salute higher prices. The dollar mark should have held. It did not. I was wrong. Tell me again, “It’s the economy, stupid.”

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    Just like all other retail-based markets, once the U.S. announced worsening inflation statistics – coupled with the FedEx President’s comment that the world economy, not just the U.S., was headed for a recession – cotton prices in tune with retail stocks crashed. Cotton blew through its 102-cent support, falling to 99 cents. Being stupid I suppose, this market appears to be headed back to the 105-cent level, but many feel the mid- to low-90s is a strong possibility.

    The dollar, to slightly higher than a dollar, should have fundamentals on its side. Yet, we must remember that retailers have excess inventory and mills have excess yarn. Retailers are only very sparse buyers of apparel goods. Thus, mills are only sparse buyers of cotton.

    The market will have to live with the numbers it has until early October. USDA has world cotton production and consumption both at 118 million bales. Likely, production will move slightly lower, and consumption will remain at 118 million bales. This will offer marginal support to prices. Fresh demand is not on the horizon and likely will not be until late 2023.

    The economy has left everyone guessing. With strong interest rate increases coming from the Fed, the economy will deteriorate further. Cotton is taking its hits now, but we cannot discount the possibility of prices moving 5-to-10 cents lower.

    Give a gift of cotton today.

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