Cotton futures have dropped by 7% over the past week, as a rush for the US dollar drives down commodity prices across the board.
 
The apparent failure of the EU summit last week to do more than simply agree to work towards closer fiscal control of eurozone member states has sent everyone into ‘risk-off’ mode. Safe-havens such as the US dollar and Treasury bonds issued by the US government are back in favour, as everyone realises that the ‘summit to save the euro’ failed to do anything of the kind. This means a bailout of Spain, or Italy, or both, is quite possible, with a bond crisis even a possibility before the end of 2011. With safe-haven trades the favoured play at present, racier assets such as commodities, including cotton, are suffering.
 
Futures for the fluffy white commodity are down to a 16-month low, with volumes also dropping away as the year winds down. Wednesday’s meeting of the Federal Reserve failed to provide anything exciting, disappointing those who had naively hoped that Ben Bernanke might unveil something of note. Supply and demand fundamentals are not helping cotton either; the US Agriculture Department has forecast world 2011/12 cotton consumption at 111.34 million bales and production far ahead at 123.42 million bales, while short positions are reported to be increasing, indicating that most investors (but, of course, not all) expect more declines.