Five months ago - when spot cotton futures were steady in the low 70s cents per pound - Joe Nicosia, head of Louis Dreyfus’s Allenberg Cotton, forecast for prices could trade up to 95 cents, or down to 55 cents.
The determinant was how the trade situation played out between China, a huge importer of cotton, and the US, the biggest exporter, with the downside possible if tensions between the two countries dragged on.
With tensions indeed persisting, and indeed deepening with US President Donald Trump’s announcement on Thursday of US tariffs on further imports from China, Mr Nicosia’s forecast is looking more and more prescient.
New York cotton futures for December closed down 4.7% at 59.42 cents a pound on Friday, the first close for a nearest-but-one contract below 60 cents since April 2016.
‘Escalating trade war’
“With an escalating trade war looming, with global cotton production trending towards 127m bales, with global demand cooling and with the technical picture rolling over, the market is currently facing a lot of headwinds,” said UK-based Plexus Cotton.
“The path of least resistance continues to be down for now.”
At Price Futures, Jack Scoville said that “demand remains a big problem for Cotton.
“World demand has been less this year as China has not been buying. World prices have been lower as a result and US prices have also been weak.”
‘Offer much less value’
And to restate comments earlier from Tobin Gorey at Commonwealth Bank of Australia, “any chance of a US-China trade deal near term seems to have evaporated.
“And with that cotton futures offer much less value as ‘play’ on a deal,” with the large (record) fund net short in cotton futures and options having raised ideas of a price spike fuelled by short covering, should US-China accord be reached.
“Moreover, the handbrake on producer and trader seasonal selling will have been released.”
Whether producers will really want to sell at current levels, with futures down 6.9% in two sessions…
By contrast, in Chicago, soft red winter wheat futures staged a strong recovery, closing up 3.2% at $4.90 ¼ a bushel for September delivery, back above their 100-day moving average.
The rebound was attributed variously to issues including chart patterns, the weakening expectations for Black Sea harvests (although Agrimoney has heard some talk that the Russian crop may be a little better than billed), the release from US harvest pressure, and simple bargain hunting.
Indeed, wheat demand hopes are more upbeat than for the likes of corn, as there has been an improved start to the season for US exports.
Exports as of late July had reached 3.82m tonnes, up 27% year on year, according to US Department of Agriculture data.
Fund shifts looked in play, whatever, with the Chicago lot, the speculators’ favourite, faring significantly better than Kansas City hard red winter wheat, which added 1.4% to $4.21 ¾ a bushel for September.
Minneapolis spring wheat gained 0.7% to $5.22 ¼ a bushel, with its harvest pressure waxing, with combines reported rolling in western North Dakota.
Kansas City hard red winter wheat in fact - as has been its habit of late, in a quest for feed demand – traded more in line with corn, which in Chicago added 1.7% to $4.09 ½ a bushel, rising back above its 200-day moving average.
There was support from further talk of US acres in the August 12 coming in well below the current USDA estimate of 91.7m acres.
Benson Quinn Commodities said that also “of import for the grains this morning is that weather forecasts eased away from next week’s rains that have been a bearish drag on the markets this week.
“Illinois, Indiana and Ohio have been drying down for the past couple weeks and this rainfall was seen helping crops fill in the east.
“Market will be hesitant to trade a one-day change in outlook but going into a weekend the fresh shorts may want to cover.”
Soybean futures traded least enthusiastically of Chicago’s big three, adding 0.6% to $8.68 ½ for November delivery, remaining more overshadowed by US-China tensions than corn or wheat.
Indeed, whatever US-China trade relations, “the further spread of African swine fever in China argues against any increase in Chinese demand for soybeans, as the decline in hog numbers in China also reduces the demand for feed,” said Commerzbank.
Terry Reilly at Futures International also highlighted USDA data overnight showing the June US soybean crush was reported at 157.6m bushels, 1.7m bushels below market expectations, as measured by a Bloomberg poll.
The figure was also down from the total of 169.5m bushels a year ago, and 165.2m bushels in May.
Still, at least the weaker crush meant lower soyoil stocks, reported at 1.97bn pounds, compared with 2.02bn pounds in May, and 2.31bn pounds at the close of June 2018.
Soyoil futures for December added 2.1% to 28.71 cents a pound.