Thu, 07 Jul 22 11:31:02 +0000

Cotton plunge: a recession warning or another market turmoil?

New York (CNN Business)Cotton: Feel, Feel,Structure of Our LifeEconomists say "" In the middle of what we call the Market Blood Bath, we really need a "tournament" to stop bleeding"

Every day last week, cotton Futures suffered a three-digit loss, and December futures contracts fell below $ 1 for the first time since January. Cotton has fallen below one-third of its price since early May, which is the U.S. Bad news for economic growth. The US dollar is the world's largest exporter of cotton.

Cotton isn't the only one showing a sharp decline. Investors are in demand in the near future in preparation for a possible recession. Prices for all commodities have fallen as we expect to fall. Crude oil, metals and other crops have also been hit hard in recent weeks.

US West Texas Intermediate Crude Oil, the oil benchmark for the US, fell more than 8% on Tuesday and traded for less than $ 100 a barrel for the first time since early May. Copper is officially in the bear market, hitting April highs. It's more than 20% below. This is a particularly bad sign. For the past 30 years, falling copper prices have been an eerie and accurate predictor of the recession.

But of cotton. The plunge has created a unique turmoil. Cotton products are primarily discretionary, much more vulnerable to lower demand during the recession, and a severe drought in western Texas will destroy this year's cotton crops. However, some economists have also stated that the way cotton is traded makes it more susceptible to the speculation and volatility of cotton.

When textile factories buy cotton from merchants, they use so-called non-fixed on-call contracts.

That is, textile companies or factories contract with cotton merchants. It states that it will receive cotton delivery in 3-6 months at a price related to where in July or December. Futures contracts are traded at the time of delivery.

Futures At some point, the market price of cotton is usually If the factory determines that the rating is as low as expected, the manufacturer calls the merchant and signs a contract at that price. Merchants usually sell cotton futures on the New York Intercontinental Exchange (ICE) when they first sign a contract to hedge their operating profit. They buy back those hedges when prices are fixed.

However, a new class of customers has changed the way the market works. Hedge funds and other major financial players have flooded the exchange with large sums of money and a lot of speculation. As a result, prices do not always match the fundamentals of the crop.

Over the past two years, cotton futures contracts have hit record highs from 48.35 cents per pound in April 2020 to nearly $ 1.60 per pound in April 2022.

Surprisingly fruitful Texas A&John Robinson, a professor of agricultural economics at the University of M, said last summer's growth period and increased pre-pandemic demand helped grow. Stated. But the main reason for the massive backlash was really just an increase in market speculation.

The Commodity Futures Trading Commissiontracks when the contract is officially finalized between the merchant and the factory and publishes that information in real time. Speculators can see the number of contracts that have not yet been amended and know exactly how long the futures contract will expire. They know if futures purchases will surge in the short term and can decide to anticipate it.

But now prices are plummeting. July 2022 cotton futures closed at $ 0.99 and December 2022 cotton futures closed at $ 0.89, Robinson said he was embarrassed by the sudden drop.

"Crops in western Texas are thinned and we don't know if anyone could run out, and we don't know why long people are being liquidated now," he said. Said.

According to the US Commodity Futures Trading Commission, last week's managed funds significantly reduced their net long positions.

The anger that "people who are not involved in commercial buying and selling drop $ 1 billion and allocate it according to their formula" is a big deal for the cotton market Depression, Robinson said. Currently, there is a growing movement among cotton producers to change the way ICE futures work to prevent speculation.

In any case, he added, many US cotton producers are hurt.

Federal Reserve announces minutes, Wall Street yells

Federal Reserve WednesdayJune 14 Release minutes from themeeting from Sunday to 15th and offer to investors Behind the scenes, we'll look at the Fed's decision to raise interest rates by three-quarters percentage points to combat high inflation. .. The

note shows that Fed members are concerned about inflation taking hold in the United States, cooling consumer and corporate high prices, even if it means a slowdown. Reaffirming their commitment to do what they need to do. Economy.

Members have hinted that the Fed will probably raise another 0.5 or three-quarters at its July meeting.

Fed policymakers "recognized that a more restrictive stance may be appropriate if inflationary pressures continue to rise," the minutes said.

The market did not seem to be driven by new data. Stock prices rose slightly in late afternoon trading and closed relatively flat.

"There isn't much new meaningful information in the minutes," Bob Miller, head of BlackRock's US state bond division, wrote in a note on Wednesday. He said the minutes were primarily a summary of what traders already knew and explained the modest reaction of investors.

Buy Now, Pay Later

Buy Now, Pay Later, Installment Plan is among the consumers you're looking for Popular in to spread the cost of high-value purchases. However, the soaring prices of essentials in the United States have led some struggling shoppers to use payment methods for small purchases such as coffee, groceries, and gas.is a CNN business colleague Alicia Wallace

Economists and consumer advocates are concerned about this phenomenon. They say that the growing popularity of these services, which are rarely monitored, could mean that Americans are in more debt than publicly reported.

"Despite the rapid growth, BNPL has signaled economists, regulatory agencies, and the Attorney General because the service is not regulated as a credit product. As a result, there are various conditions, and there is little check and balance in the wildwest style market, "Wallace wrote.