Commodity speculators such as cotton are awakened in their dreams of intoxication

Not long ago, commodity prices such as cotton and sugar experienced a sharp upward surge. However, in recent days, the market has started to show signs of correction. This adjustment is being driven by several key factors that have shifted in the past few weeks. First, the underlying conditions that fueled the previous price rally have changed. The Federal Reserve’s second round of quantitative easing played a major role in pushing up commodity prices, as it led to a significant depreciation of the U.S. dollar. But after the Fed officially announced its policy, the dollar index fell for only two days before starting to rebound sharply—by over 3.6%. This suggests that speculative capital had been overly focused on the commodity boom, while ignoring critical fundamental shifts, such as the resurgence of debt concerns in Ireland and Portugal. These issues were largely overlooked due to the strong momentum in the market, which kept prices rising for more than four days before a sudden reversal occurred. Second, there has been a shift in domestic macroeconomic policies. With the October CPI reaching 4.4%, the central bank raised the deposit reserve ratio by 0.5%, signaling a tightening stance. This move has increased expectations among market participants for further regulatory actions, and the pace of market oversight is expected to remain tight. Third, the stock market and real estate sectors have also seen significant declines. As equity markets faltered, so did the commodities market, leading to a loss of bullish sentiment. The interconnected nature of these markets means that a downturn in one often triggers a broader sell-off. Fourth, the rapid rise in bulk commodity prices has created strong profit-taking pressure. The Zhengzhou Commodity Index, for example, nearly doubled in just two months, making the market highly vulnerable to short-term corrections. If any negative signals emerge, the market could quickly reverse, with warehouses releasing supplies and bears exerting downward pressure. From what we see now, the commodity market is beginning to adjust. While the exact timing and extent of this correction remain uncertain, it may represent an intermediate phase. If the U.S. dollar index starts a stronger rally, the adjustment in commodities could be more severe. On the other hand, if the dollar's rebound is short-lived, the correction in commodities will likely be smaller.