Every mutual agreement is based on confidence, trust or faith in your partner. This is the case for business deals as well as for deals in the private sector. Even if your are sure you will buy model X as your next car, if you don’t trust the salesman you will not buy anything and will walk out of the shop. This is even more the case in the modern money world. Since it became common sense to gamble on stock exchanges, some more serious people are looking for a safe haven for their money.
 
The World Is Upside Down
In times of modern and globally connected communication, information on everything is available on the Internet or elsewhere. Institutions, banks, and people with a lot of money, are carefully watching exchange rates for the most important currencies in order of the importance of the markets — the US Dollar, the Euro, maybe the Chinese Renminbi and the Japanese Yen. These countries, except China, are partners in the G8 group. So, if one lives in one of these countries, and has trust in his own financial system, he will leave his money in the banks of his own country.
 
Investors are carefully watching the whole economical and political situation in a country — the list of things to take into consideration is rather long — but stability is probably one of the most important issues. But if one has concerns about stability, he wants to find a more secure place and starts looking for a safe (money) haven. There are a lot of other countries besides the G8 members that have not the same sometimes questionable economical situations and governments.
 
Typically, Switzerland has fulfilled all the desired banking requirements and the old fairy tale says that every Swiss citizen is a rich citizen. And, dear reader, as a Swiss, the author of this report can assure you the fairy tale is not true at all. But since the Euro was introduced in Europe, a lot of money came into the Swiss banks, which led the US Dollar and particularly the Euro to weaken. In 2011, the Euro was under so much pressure that it lost 25 percent of its value compared to the Swiss Franc, and the Swiss National Bank (SNB) was forced to support the currency with a fixed exchange rate at CHF 1.20 to 1.00 Euro over an undefined period of time. And now the surprise after three years …
 
The SNB cancelled the Euro minimum exchange rate of CHF 1.20. With the abolition of the minimum price, the SNB has changed its monetary policy because of an increasing divergence of the major currency blocs. SNB President Thomas Jordan said that he could only announce the end of the minimum rate policy at once. Otherwise this would have been an invitation to insider trading.
 
The abolition of the minimum exchange rate is for some sectors a terrible shock. However, as Jordan said, the overvaluation of the Swiss Franc has decreased since the introduction of the minimum exchange rate in September 2011. On the other hand, the domestic economy was able to use the three and a half years of a planning security to take measures for a time after this period. Jordan said that it was clear from the beginning that the minimum rate was a temporary measure that would not continue endlessly.
 
The Message
There are some more facts involved, however, this is not the basic message of this Rupp Report. The message is that faith and confidence are still the essence of every prosperous industry. And despite troubles and losses of an estimated 500 billion Swiss Francs for the domestic industry, the SNB president is convinced that the domestic industry will face these severe problems and find solutions for a positive future. “Switzerland is now in a much better shape; the export figures, economic growth and an employment rate of some 3 percent are positive,” said Jordan. “The economy had its time to adapt to these conditions and the minimum rate has stabilized the economy. But now we are in a different situation and the SNB cannot meet all requested conditions at any time. It is better to realize that at the right time as to generate a much bigger shock later.” Strong words.
 
But it means he has faith and confidence in the domestic industry. Sometimes people from outside Switzerland are wondering about the ongoing success of such a small country with such an expensive cost of living and high wages. The reasons are no secret, here’s just a few hints: mind your own business; be a reliable partner to all your business partners; don’t accept second best, whatever that may be; use your brain and hands and don’t talk, do it.
 
See For Yourself
Jordan said that “Postponing the decision into the future would not have been less uncomfortable; it would even generate more severe side effects. Finally, Switzerland is not a monetary paradise where high interest rates for savers, a low Swiss Franc for the export sector and the absence of risks can be brought together at the same time forever.”
 
Conclusion? Help yourself, and don’t rely on other people. As the late U.S. president John F. Kennedy once said: “Ask not what your country can do for you — ask what you can do for your country.”
 
Let’s hope that all exhibitors at the forthcoming textile machinery events will go there with such a spirit of honesty and confidence. Because despite all positive thinking, the job must be done first. To be continued …
 
January 20, 2015

Sometimes it is not easy to understand global markets. On the one side, people from Main Street are complaining about never-ending rising costs in everyday life. On the other side, the relevant markets are complaining that prices are too low. At the moment, this particularly is the case for crude oil and therefore the stuff to fuel heaters around the globe. Hmm.
 
It is understandable that oil producing countries — dependable on this precious raw material — are complaining about the current low prices, while people from Main Street are more happy than ever about purchasing cheap fuel. Experts, fortunetellers and (probably) wise men are asking the question: Why all this? And what about another raw material, cotton? It its latest report, the International Cotton Advisory Committee (ICAC) wrote that low cotton prices could be a long-term problem? Why?
 
Production Surplus
The Rupp Report has informed its readers more recently about volatile cotton prices. Since last spring when they were above 90 cents per pound (cents/lb), international cotton prices have fallen to under 70 cents/lb in December. To counter low prices, cotton consumption is forecast to increase by 925,000 tons to 24.4 million tons in 2014-15, after falling 1 percent to 23.5 million tons in 2013-14. “Lower international and domestic prices are expected to bolster consumption in China by 6 percent to just under eight million tons,” said a recent press release from the ICAI. “The contraction in China’s demand for cotton yarn imports is expected to cause India’s cotton consumption growth to slow to 4 percent reaching 5.3 million tons. This is down from 5 percent in 2013/14 and 14 percent in 2012/13 when demand for Indian yarn exports was much stronger.
 
“Despite expected growth in cotton consumption this season, a world production surplus of 1.7 million tons is still anticipated,” continued the ICAC press release. “This will bring 2014/15 world ending stocks to 21.3 million tons, up 9 percent from 2013/14 and up 147 percent from 2009/10 when stocks reached a 15-year low. The average world stock-to-use ratio in the 25 years before China began its reserve policy in 2011 was 47 percent. However, the volume of ending stocks would represent 87 percent of the projected consumption in 2014/15, and is weighing heavily on prices this season. Even assuming reasonably lower production and higher consumption in the next few years, it will take several seasons for the significant volume of stocks to reach a more sustainable level, and low cotton prices are likely to persist while the market adjusts.”
 
Yes, But …
The ICAC report continues: “However, world production is estimated down 1 percent to 26.1 million tons due to reductions in China and the Southern Hemisphere. As a result of the contraction in area caused by changes in its cotton policy and falling domestic cotton prices, China’s cotton production is projected down 7 percent to 6.4 million tons. In response to low world prices, Brazil’s production is forecast to fall by 10 percent to 1.5 million tons. Meanwhile, low prices and a significant drought are expected to reduce Australia’s production by 47 percent to 470,000 tons. India’s production is expected to remain stable at 6.8 million tons due to less favorable monsoon weather this season despite an expansion in the cotton area by 5 percent to 12.3 million hectares. However, its production will surpass China’s by over 300,000 tons, making it the largest cotton producer in 2014/15. Production in the United States is looking to rebound 23 percent to 3.5 million tons, partially offsetting declines in the other major producing countries.
 
How is the global situation? Have a look at the table:

United Kingdom-based Plexus Cotton Ltd., one of The Rupp Report’s preferable sources for cotton news, said in its Market Report dated January 8, 2015: “NY futures continued to trade sideways last week, with the March contract edging up 29 points to close at 60.56 cents. So far, around 7.6 million bales have been freed from the loan, which means that including beginning stocks of 2.5 million bales there are now 10.1 million bales outside the government loan system. U.S. export sales ended the year on a firm note, as 158,800 running bales of Upland and Pima cotton were sold during the week of December 26 to January 1. China was once again the major force in the market with 78,500 running bales, followed by Vietnam with 34,700 bales. Total commitments for the current marketing year now amount to 7.9 million statistical bales, whereof 2.6 million bales have so far been exported.”
 
It’s The Market. What Else?
Probably the best explanation for all these ups and downs is quite simple: It’s the market, in most cases, that dictates the price. Today, when OPEC is weak and some countries are able to drill or use fracking to obtain oil for much less money than other countries, then they want to have the advantage of more competitive prices.
 
The January 8 Plexus Market Report states: … the magnitude of this drop in energy prices — which includes other energy sources such as natural gas and coal — is mindboggling! When crude oil was trading at US$100/barrel, the global annual production value amounted to around US$3.4 trillion dollars, which means that at US$50/barrel, producers are losing about US$1.7 trillion dollars in revenue per annum, while users are saving that same amount. About half of global oil production crosses borders and therefore the trade value would drop by around US$850 billion dollars a year if the price of crude were to remain near current levels. Countries like the U.S. and China are both big producers as well as importers, which means that certain sectors of the economy will take a hit.”
 
And if the Chinese are sitting on some 10 million plus metric tons of cotton, and stop buying, the result is clear as well. Plexus estimates that by the end of the season, stocks held outside of China will rise by 20 percent, to nearly 9 million tons, the second largest volume (after 2004-05) in the last 30 years. Much of this increase will be held by producing countries, and likely will cause world exports to fall 15 percent to 7.5 million tons.
 
However, having US$1.7 trillion dollars in the pocket of the global consumers is not a bad thing. Let’s hope that this money will be spent this year, maybe at the ITMA Europe in Milano; or at the very least, in buying more cotton products!
 
January 13, 2015