Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How Cotton Is Surging Past 80 Cents While Crude Oil Rebounds
Transcript
- Lucas: Cotton futures just crossed 80 cents a pound for the first time in over a year, up nearly 11 percent in the last five trading days. And the interesting part is that this rally is happening while crude oil is also surging — WTI up almost 9 percent in the same stretch — but for completely different reasons. Luna: So we've got two commodities making big moves at the same time, but the drivers are nearly opposite. Cotton is up on supply tightness and strong demand, while oil is up on a geopolitical shock. Lucas: Exactly. Let's start with cotton. The US Department of Agriculture's most recent acreage report showed planted area down significantly — we're looking at the smallest cotton crop in years. That's on top of drought conditions in West Texas that have already trimmed yield expectations. Luna: And demand hasn't fallen off. Millers are still buying, especially from Southeast Asia. Export sales data has been consistently strong. Lucas: Right. The latest weekly export numbers showed net sales well above the prior four-week average. China, Vietnam, Pakistan — all taking US cotton. So you've got a supply-driven rally with demand holding up. Luna: Meanwhile, oil is a completely different story. The Iran ceasefire that was announced just a few weeks ago has collapsed. President Trump declared it 'over' this morning after more strikes, and the market is pricing in a real supply disruption risk from the Strait of Hormuz. Lucas: Yeah, WTI hit 74.81 today, Brent at 78.68. That's a massive move for a two-week period. And it's not just crude — gasoline and heating oil are up too. The energy complex is reacting to the same headline risk. Luna: But here's what I find interesting: gold and silver are actually down over the past five days. Gold slipped about 1.4 percent, silver dropped over 3 percent. That's the opposite of what you'd expect if this were a pure risk-off move. Lucas: Right, and that tells you the market isn't just fleeing to safe havens. The dollar has been a bit firmer, and real yields have ticked up. Plus, the inflation data we got — May CPI came in at 334.0, core at 336.1 — those are still elevated. So the Fed isn't cutting rates anytime soon, which is a headwind for non-yielding assets like gold. Luna: So cotton is rallying on its own fundamentals, oil is rallying on geopolitics, and gold is actually selling off because the macro backdrop — sticky inflation, higher rates — is working against it. That's a pretty clear picture of how different commodity markets can diverge. Lucas: And it's a good reminder that commodities are not a monolith. Even within the same week, you can have cotton up 11 percent, crude up 9 percent, and gold down. If you're trading or investing, you really need to understand the specific drivers for each market. Luna: Absolutely. And this kind of granular breakdown is exactly why people listen to this show. If walking through the economy with us has helped make these connections click for you, we'd love your support. It keeps the show ad-free and independent. Lucas: Yeah, listener support makes a real difference. If you're able, you can head to buy me a coffee dot com slash fexingo. No pressure at all — we're just glad you're here. Luna: Alright, back to the markets. Lucas, you mentioned the USDA acreage report. Do you think we could see cotton push past 85 cents if the supply picture gets even tighter? Lucas: It's possible, but a lot depends on the weather over the next few weeks. The key growing region in West Texas is still dry, and if that persists, we could see further downgrades to yield. On the demand side, we need to watch whether China starts buying more from Brazil or India instead. But for now, the path of least resistance seems higher. Luna: And what about oil? How high can it go if the Iran situation escalates further? Lucas: That's the big unknown. If we see actual disruptions to tanker traffic through the Strait of Hormuz, you could see WTI spike into the low 80s quickly. The market is already pricing in a risk premium, but it hasn't fully baked in a worst-case scenario. However, OPEC+ has spare capacity — mostly from Saudi Arabia and the UAE — so they could theoretically ramp up production to calm things down. Luna: But that takes time, and political will. And right now, the Saudis might not want to step in if they see this as a temporary spike. Lucas: Exactly. And there's also the demand side — global economic growth is slowing. The PMI data has been softening, especially in Europe and China. So higher oil prices could actually accelerate that slowdown, which would eventually cap the rally. Luna: So cotton is the pure supply-demand story, oil is the geopolitics story. And gold is stuck in the middle of a macro tug of war. That's a lot to keep track of. Lucas: It is, but that's what makes commodities so fascinating. Every market has its own narrative. And right now, cotton's narrative is one of the most compelling because it's so straightforward — less supply, steady demand, higher prices. Luna: I'd add that the trade policy backdrop is also worth watching. The Trump administration's new tariff threats — like cutting off trade with Spain — could disrupt textile supply chains and potentially boost demand for US cotton from some regions while hurting it from others. Lucas: Good point. And it's not just Spain — there's been tension with NATO allies as well. Any escalation in trade disputes could shift trade flows. But for now, the dominant factor is the US crop size. Luna: Alright, so we've covered cotton, oil, and gold. What about other commodities? I see corn and soybeans are also up big — corn gained over 9 percent in the last five days, soybeans over 6 percent. Lucas: Yeah, grains are having a strong week too, partly on weather concerns in the US Midwest and partly on the same dollar weakness that's been supportive for dollar-denominated commodities. But the rally in cotton is more impressive in percentage terms because it's coming from a tighter supply base. Luna: And natural gas is up 4.4 percent — that's a solid move, but not as dramatic. It seems like the energy space is really bifurcated between crude and everything else. Lucas: Exactly. Natural gas is more driven by storage levels and seasonal demand, not geopolitics. So while crude is spiking on Iran news, nat gas is just grinding higher on hot summer weather and good injection data. Luna: Alright, let's zoom out a bit. If you had to pick one commodity to watch for the rest of July, which would it be? Lucas: I'd say cotton. The supply situation is the most acute, and we're entering the critical development period for the crop. Any more heat or dryness could send prices to 90 cents. Plus, the export demand shows no signs of slowing. It's the cleanest bull case in commodities right now. Luna: I think I'd agree. Oil is too volatile and event-driven — you could wake up to a ceasefire tomorrow and see prices drop 5 percent. But cotton's story is more structural. And that's what makes for a compelling investment thesis. Lucas: For sure. And we'll keep tracking it. Thanks for joining us on this episode of The Commodities Economy.