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Evening markets: Cocoa, cotton buck ag market selldown

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Has last week’s fall in cotton prices to a three-year low sparked buying interest?

 

Certainly, the fibre began the week on a firm note, bucking the prevailing direction in agricultural commodities, with the Bcom ag subindex down 1.3% in late deals, on track for only its second close below its 50-day moving average, and 100-day moving average, in nigh on two months.

 

Cotton futures for December, however, stood up 0.7% at 63.53 cents a pound in late deals in New York, continuing their revival after on Thursday hitting 61.66 cents a pound, the weakest for a nearest-but-one contract since May 2016.

 

‘Low appetite to sell more’

“A 3-cent fall in prices is enough to find some buyers at most times,” said Tobin Gorey at Commonwealth Bank of Australia, noting that the December contract had “fallen by more than 8% over the past fortnight or so”.

 

“Secondly, we suspect investors are now running [a] low appetite to sell more,” he said.

 

The weekly Commodity Futures Trading Commission briefing out on Friday showed hedge funds holding a record net short, of 44,270 lots, in cotton futures and options, raising worries about their appetite for more such positions.

 

Temporary revival?

Sure, this was a fourth successive week of a record net short. But the chance of a short-covering rally has risen with talk of progress on a US-China trade deal.

 

Richard Feltes at RJ O’Brien noted comments late last week from Steven Mnuchin, US treasury secretary, that “talks with China were ‘very good’”.

 

And of course China is, in normal times, a large buyer of US cotton (as well as soybeans).

 

That said, Mr Gorey was not so upbeat about longer-term cotton price prospects, saying that “we, and others, find it difficult to suggest the market has reached a turning point after such a hefty fall”, viewing the current recovery more in terms of “why the decline might halt for period at least”.

 

Louis Rose at Rose Commodity Group warned that “if the world crop lives up to expectations and world consumption continues to cool, new crop appears headed to the mid-to-high 50s” cents per pound.

 

‘Surprisingly positive’

Also in positive territory was cocoa, which settled up 2.6% at $2,532 a tonne in New York for September delivery, and up 1.6% at $1,866 a tonne in London.

 

Commerbank said: “The cocoa price in New York has recovered somewhat after slumping in response to the disappointing European grinding data,” which fell by 3.2% year on year in the April-to-June quarter, July 16 data showed.

 

The bank noted that late “last week, the figures from Asia were surprisingly positive - a new grinding record was achieved at 216,000 tonnes, constituting a 16% increase year-on-year.

 

“The Cocoa Association of Asia (CAA) is talking of robust demand,” while the North American grind for the quarter showed a 3.7% gain.

 

‘Awful signal’

However, this pair were the exception, with raw sugar extending its decline, standing 0.4% lower at 11.55 cents a pound for October in late deals in New York, despite a boost to oil prices (and hence expectations for ethanol values) from Iran-Western tensions.

 

Marex Spectron highlighted the clouds over the market formed last week after the large delivery, of more than 15,000 lots of Thai origin, made against the expiring London August white sugar contract.

 

“It gave an awful signal to the market,” Marex said, flagging too that a comment by the Indian Sugar Mills Association that India’s sugar export subsidy should apply to 8m tonnes, instead of this season’s 5m tonnes, also “frightened the horses”.

 

The Brazilian real also weakened a touch, a factor which too contributed to a 2.5% dip to a close of 105.10 cents a pound in September arabica coffee futures, also weighed by ideas of strong Brazilian exports.

 

‘Risk premium being removed’

In Chicago, corn futures fared notably badly too, shedding 2.2% to $4.26 a bushel in late deals for the December lot, on track for what would be its lowest close in nigh on three weeks, weighed by an improved US weather outlook.

 

“A cold front is currently pushing across the southern Midwest, and will push into the southern Plains and Delta later today,” said Maxar, adding that this front “will touch off a few additional showers in the southern and eastern Midwest, far southern Plains, and Delta”.

 

It will “also usher in cooler temperatures” - conditions which “will ease heat stress on corn and soybeans”, the weather service said, if adding that “the continued drier pattern in the central Midwest will lower moisture further”, in areas including parts of Iowa, Illinois and Indiana.

 

Karl Setzer at AgriVisor said that “the heat that was impacting the Corn Belt last week broke down”.

 

“Current conditions are favourable for crop production,” meaning that “risk premium is again being removed” from prices.

 

US corn export data for last week of 438,045 tonnes, below a range of 500,000-700,000 tonnes expected by investors, only stoked concerns of elevated prices stemming demand.

 

Meanwhile, the EU Mars bureau surprised some observers by raising, rather than trimming, its forecast for the bloc’s corn yield this year.

 

 

 

For wheat, the US export data for last week, at 433,117 tonnes, were OK, coming within the forecast range of 350,000-550,000 tonnes,

 

But against a tumbling corn price, and with harvest pressure telling on northern hemisphere prices too, futures softened, standing down 2.8% at $4.88 ¼ a bushel for the Chicago September contract in late deals.

 

Maxar said that its weather outlook meant that Midwest “wheat harvesting will progress well” this week.

 

Slipping soy

Soybeans fared best of Chicago’s big three, in shedding a more modest 1.4% to $9.06 ¾ a bushel for November in late deals, offered some support by the US-China trade deal hopes.

 

Some traders noted a Bloomberg story that the Chinese government was “in discussions with state and privately-owned soybean buyers over a plan to raise purchases of US supplies, according to people familiar with the situation.

 

“The government met with the companies on Friday in Beijing to discuss the plan, which could include waiving retaliatory tariffs on US imports.”

 

Still, with investors wary of investing too much hope in any particular US-China deal rumour, Midwest weather improved and grains negative, soybean sellers were in the ascendancy.

 

US soybean exports last week of 559,462 tonnes came within a forecast range of 450,000-750,000 tonnes, but were well down on the 855,000 tonnes the week before.

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