Investors complaining about the lack of volatility in
financial markets overlooked cotton.
While the Vix index of expected US equity turbulence — often termed the "fear index" — this week
closed at a 23-year low, cotton futures,
having in the last session notched up their biggest daily gain in 10 months,
went even further on Friday.
The July cotton contract closed up the exchange maximum of
3.00 cents (3.8%) at 82.18 cents a pound, the highest level in nearly three
years for a spot contact.
The gain, which took to 7.4% the contract's gain in two
session, puzzled many observers, including Commerzbank, which said that "there
is no fundamental explanation for the price surge".
"The latest estimates [for the global cotton balance sheet
in 2017-18] published by the US Department of Agriculture the day before were
anything but encouraging" for bulls, the bank said.
"The USDA envisages global cotton production of 113.2m bales
in 2017-18. The USDA was still predicting a figure of 108m bales back in
However, one factor noted as spurring the price gains was US
export data on Thursday, which showed "seasonally strong" export sales of
cotton last week, according to Louis Rose at Rose Commodity Group.
"The US export data were surprisingly positive," Commerzbank
Actual exports, at 430,000 running bales, were even more
promising, in terms of indicating some tightness in the world market, and backing
expectations that the USDA will again be forced to revise up its forecast for
domestic shipments in 2017-18.
Cotton vs polyester
Still, whether the rally is sowing the seeds of its own demise…
Mr Rose also noted the threat of cotton's price surge losing
it demand to rival fibres, besides an apparent disconnect between US and world
"Internationally, we continue to be concerned about the
weakening of both cotton yarn and polyester quotes across many cotton spinning
geographies," he said.
"A month or so back we heard from one source within the
trade that if ICE July futures moved to challenge the 81.00–82.00 cents a pound
level, that significant cancelling of on-call commitments could be expected.
"We have breached this benchmark this evening."
Among other ag markets, cocoa
posted decent gains, settling up 3.2% at $2,015 a tonne in New York for July
delivery – taking gains for the week to 8%, the best weekly performance since
That will be sweet for the investors which have hiked their long
exposure in cocoa exchange traded products to well above those in, say, corn,
as Agrimoney.com reported.
And the rally came amid unrest among the military in Ivory
Coast, the top cocoa producing country, over a pay dispute.
There is also some concern over West African weather too,
with Jack Scoville at Price Futures sayong that "more rain is needed to help
maintain crop condition as temperatures have been warm to hot".
Wheat's Lazarus act
But grains failed to move too far, according with the broader
financial markets theme,
"It rally could not be much quieter," said Darrell Holaday
at Country Futures, saying futures were in a "generally very narrow trading
range and volume is generally light".
futures for July, for instance, managing a 0.1% move, downward, to $4.52 ¾ a
The decline came amid waning weather fears, on two counts.
The first was a reminder that late April cold and snows do
not appear to have caused nearly as much damage as originally feared.
"Most of the wheat that was affected by the snow storm in
the western portion of the hard red winter wheat belt is back to standing after
being laid down from the wind and weight of the heavy wet snow," said CHS
The second weather factor was improved sowing conditions for
the northern US Plans into Canada, spring wheat country.
"Spring wheat acres are flying into the ground," said
Minnesota-based CHS Hedging.
"Minnesota should be close to wrapping up wheat planting.
"North Dakota is making great progress too, but some areas
are still wet after ample snowfall this winter and a wet spring."
Spring wheat futures themselves dropped 0.3% to $5.46 ¾ a
bushel in Minneapolis, for July delivery.,
'Another wet period'
However, futures in rival grain corn added 0.5% to $3.71 a bushel, closing back above their 50-day
moving average, amid fresh uncertainty over planting weather further south, in the
eastern Corn Belt.
"Weather models still pointing to a window of dryness
through mid-week next week, but also indicate another wet period beginning at
that time," Mr Holaday said.
"The two week forecast is turning wetter," said Bewnson
Quinn Commodities, adding that "the rains will be welcome in the north.
"But in the eastern half of the Corn Belt, the trade is
speculating on prevent plant acres and what the excessive moisture will do to
corn and soybean yield potential.
"Many 'what-if' balance sheet scenarios are floating around
that could have the US corn and bean balance sheets tightening slightly
year-on-year is top end of production has been taken off the crops."
'Poor exports sales'
Informa waded into the balance sheet tweaks by lowering it
own forecast for US corn plantings by 1.1m acres to 89.72m acres, a touch below
the official USDA figure of 90.0m acres.
But the soybean sowings estimate was less supportive for
prices, being raised by nearly 1m acres to 89.662m acres.
Furthermore, "poor exports sales, bigger South American
crops continue to weigh on the soybean market," CHS Hedging said.
And weather delays to corn sowings could be perceived as
bearish for soybeans too, in raising the chances indeed of higher soybean
seedings, as farmers switch to a crop which can be slightly later planted.