Cotton futures faced pressure this week as escalating geopolitical tensions and continued macro uncertainty gave jitters to would-be textile mill customers, according to the Plains Cotton Cooperative Association (PCCA).
May futures fell 141 points on the week, settling at 64.20 cents per pound.
According to the report, markets spent much of the week reacting to escalating tensions in the Middle East as the conflict between the U.S. and Iran intensified.
Potential shipping disruptions, particularly through the Strait of Hormuz, added another layer of uncertainty to global markets.
The U.S. Dollar strengthened throughout the week, creating additional headwinds for agricultural markets, while energy prices and gold moved higher amid geopolitical risk. Despite strength across much of the commodity space and greater-than-expected short covering by speculators, cotton moved lower and failed to keep pace with gains in crude oil and the grain complex.
On-call activity was also the most supportive it has been in some time. The latest CFTC Cotton On-Call report showed the imbalance between unfixed sales and purchases narrowing further to its smallest level in over a year. Unfixed sales increased while unfixed purchases edged slightly lower, continuing the trend of growers using the recent rally to price additional cotton.
Trading activity stayed strong throughout the past week, with solid participation across the board. A total of 600 delivery notices were issued against the March contract. Open interest decreased by 2,574 contracts to 326,278, while certificated stocks continued to build, increasing 3,124 bales to 129,302.
Energy markets are setting the tone across commodities right now. Brent crude jumped more than 27% last week, the largest weekly increase since 2020. Large inflows into crude have begun spilling into agricultural markets as investors adjust positions and respond to rising inflation expectations.
A lot of attention is now shifting to inflation and the Federal Reserve. Last Friday’s Nonfarm Payrolls report came in weaker than expected. Markets will now be watching Wednesday’s CPI and Friday’s PCE report for the next signal on inflation ahead of next week’s Federal Reserve meeting. While the data reflects February inflation, the recent surge in energy prices means markets will likely focus more on what it implies for inflation going forward.