Cotton is sprucing up its act, a bit, in terms of through price appealing to farmers for area as they set forth on spring sowings.
Last week, the fibre touched 3.78 times - in terms of its value per tonne compared with soybeans, on a new crop futures basis - the lowest ratio of 2021, and offering a meagre case for growers to prefer it in planting programmes.
However, its has since revived that ratio to 3.99.
While hardly elevated - the ratio reached 4.30 in mid-February – cotton is at least showing improvement in its price allure.
Main rivals soybeans and corn are deadlocked, holding close to a new crop price ratio of 2.6 all year, while the spring wheat grown in the northern US has settled for some weeks for a price ratio of 1.4 versus corn.
In fact, cotton’s increased appeal looks only in part down its own making.
It has over the past week, in falling by less than 3% on a new crop December contract basis, weakened less in price terms than the rival crops, which have suffered a particular selldown ahead of official reports due later on Wednesday on US grain stocks, as well on crop sowings.
With both reports having a history of causing large price swings, grain contracts in particular have attracted profit-taking by investors taking a safety-first approach.
‘Remains very dry’
Still, cotton futures are finding support too from recent strength in the US export performance.
Total US cotton export commitments, ie actual shipments and unfulfilled sales combined, have now exceeded the 15.5m tonnes that the US Department of Agriculture expects for 2020-21, which has a further four months to run.
And from a new crop perspective, planting conditions are not ideal.
While the key US growing area of West Texas “has received some moisture from thunderstorms, most of the region remains very dry and unless we get soaking rain soon, the headlines will turn to the ongoing drought again”, said Plexus Cotton.
‘Pummelled by rain’
Meanwhile, further east in the cotton belt, “the Mid-south and the south eastern states continue to be pummelled by rain and thunderstorms, some severe,” said Louis Rose at Rose Commodity Group, based in Tennessee.
“I would tell you how much has rained recently but our gauge is overflowing. Seriously.”
In the Deep South, cotton “planting season is less than three weeks away…and little fieldwork is possible”, thanks to rains.
Of course, what the USDA acreage report says later on Wednesday will, as well as weather, have an impact too on new crop cotton prices ahead, and the extent to which they attempt to buy extra area (or not).
Still, one thing worth noting is that the USDA briefing was taken early this month, when new crop cotton prices were, generally, a little higher in relative terms than now. The average for the first two weeks of March was some 4.1 times November soybeans.
That could cushion a little any negative price response to a figure above the 12m acres or so which investors are expecting from the briefing.
|New crop futures price ratios|
|Soybeans vs corn
||Cotton vs soybeans
||Spring wheat vs corn|
|February 19 (second day of USDA Outlook Forum)||2.60||4.29||1.44|
|February 18 (first day of USDA Outlook Forum)||2.58||4.30||1.45|
|January 12 (day of USDA Wasde, grain stocks, winter wheat sowings reports)||2.57||3.94||1.40|
|December 31 2020||2.56||4.04||1.43|
|November 30 2020||2.55||4.07||1.44|