Cotton market sees a steep drop with NY futures sharp fall

25 Jan '08

3 min read

NY futures dropped sharply this week, as March lost 353 points to close at 68.39 cents, while December gave back 337 points to close at 76.62 cents.

Easy come, easy go! That seems to best sum up the recent action in the cotton market, as last week's five cents spike was quickly followed by a steep drop of almost equal proportions.

With financial markets in a state of confusion and with traders making decisions based on the emotion of the moment, it has become quite difficult to anticipate the market's next move. The cotton market seems to have no mind of its own at the moment and instead follows the wild gyrations of outside markets.

The apparent logic suggests that if the US were to enter a recession, it would pull the world economy down with it, which in turn could lead to a significant drop in consumer spending and therefore weigh on commodity prices. While we don't disagree with the forecast of a recession in the US - in all likelihood we are already in the midst of one - we don't necessarily agree with the conclusion that this will invariably lead to lower prices.

If the powers in charge would let the business cycle take its course, the economy would most likely head into a severe recession. But as we have witnessed this week, the US government and the Federal Reserve are throwing everything but the kitchen sink at this threat of recession by authorizing a significant tax-cut and spending plan, and by dropping interest rates by the widest margin in two decades.

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