Last week (February 21-25), the sudden outbreak of military conflict between Russia and Ukraine brought a huge shock to the global financial market. With the progress of the war, international crude oil, grains, metals and other commodities have been flying up and down, and ICE cotton futures have followed the external market. Minutes, the weekly decline for the third consecutive week.

In my comment on February 14, the author believed that the military actions of the United States and Russia on the border of Ukraine have attracted market attention. If the situation develops beyond expectations, anything can happen, and the geopolitical situation may become a "black swan event" this year. Only a few days after the article was published, the Russian-Ukrainian war broke out. The Ukrainian crisis has brought risks to global energy and food, leading to record highs in international oil and grain prices, as well as impact on the global economy, trade and retail consumption. Cotton consumption is at risk of decline. At the same time, safe-haven funds pushed the dollar index soaring, and the cotton market will also be under pressure. And with the new round of inflation rising, the possibility of the Fed raising interest rates in March seems more likely. Therefore, the current military conflict is clearly unfavorable for cotton.

The US Agricultural Outlook Forum last week made a preliminary judgment on the situation in the next year. The global cotton production is expected to be 124 million bales, a year-on-year increase of 3.2%, which is the ZG level since the 2017/18 season. Cotton consumption is expected to be 126.5 million bales, a year-on-year increase. 1.7%. Global ending stocks fell 2.5 million bales as consumption exceeded production. Nonetheless, the 2022/23 average of the Cortluk A Index is expected to fall 30 cents from its highs to 95 cents/lb. U.S. cotton acreage is expected to be 12.7 million acres, up 13% year-on-year, well above the NCC forecast of 7.3%, production is expected to be 18.2 million bales, an increase of 3% year-on-year, exports are expected to be 15.5 million bales, and ending stocks are expected to be 3.6 million package, an increase of 100,000 packages year-on-year. From this point of view, the main theme of the next year is the increase in cotton production and the fall in cotton prices, and the medium and long-term trend is not optimistic.

According to the U.S. Cotton Export Weekly Report released by USDA, the U.S. cotton export situation was better than expected last week. The U.S. upland cotton contracted 56,000 tons this year, an increase of 56% month-on-month, and the next year’s contracted volume of 49,500 tons. U.S. cotton shipments also rose 39% month-on-month, hitting a new annual high, which brought some support to the war-shadowed market.

Nevertheless, the main factor affecting the market is still the situation in Ukraine. Some traders worry that the overall consumption of commodities will decline. This psychological impact may be difficult to eliminate in a short time. The recent trend of cotton prices depends on the direction of the military conflict between Russia and Ukraine. According to the CFTC position report, funds continued to reduce long positions in cotton by 3,000 hands last week. With the Ukraine crisis continuing to weigh on market psychology, the fund sell-off is unlikely to stop anytime soon.