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Morning markets: Cotton futures attempt revival. Will gains hold this time?

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Cotton futures started strong out of the gate. Can they hang on to gains this time?

 

The New York May cotton contract stood up 0.7% at 77.51 cents a pound as of 10:15 UK time (04:15 Chicago time), looking for what would be its first positive finish this week.

 

Indeed, the contract has gained a habit of starting on a firm note, only to give way to selling during US trading hours.

 

Whether they gain this time may be down to weekly US export data later, which are expected to come in strong – as they were last time – ideas which indeed supported early price headway.

 

‘Should be quite healthy’

 

At Rose Commodity Group, Louis Rose said: “Analysis suggests that sales and shipments for the week ending February 8 could resemble figures put forth last week.

 

“In fact, rumours from the trade suggest that data put forth on Thursday should be quite healthy.”

 

At McCleskey Cotton, Ron Lee said – noting data last time of export sales of a “very robust” 400,000 running bales, and shipments at a marketing year high of 432,000 running bales –said that “with prices even lower over the last week, it stands to reason that we will see yet another good export report” later.

 

‘Shortage of trucks’

 

The real issue has been actual shipments, which have legged sales, a dynamic seen by many commentators, including Mr Lee, as reflecting increased trucking costs brought in by US regulations on driver hours.

 

“That means there is a shortage of trucks to ship stuff. That means freight rates have to go up to meet demand,” Mr Lee said.

 

“Instead of getting a load of cotton from Bronwood to Savannah for $450 like shippers have paid for years, it’s now more like $800 if you want to get it picked up and delivered.”

 

A strong shipment figure would imply that “shippers are biting this bullet and paying the cost do to business”, at the equivalent of about 1 cent per pound of cotton.

 

Rain in the forecast

 

Also of interest later to the cotton and wheat markets in particular will be the weekly US drought monitor, to show updated data on the spread of dryness in the US southern Plains, where a lack of rainfall has damaged wheat seedlings already in the ground, and prospects for cotton seed about to go in.

 

In fact, there is some prospect of rainfall, with Terry Reilly at Futures International noting an outlook that “snow and rain will develop in the US central Plains Thursday and become significant from New Mexico to the northern Delta Friday.

 

“Moisture totals by Saturday will vary from 0.05-0.15 inch from west Texas to western Oklahoma and south central Kansas, while areas to the east and south will receive up to 0.50 inches.”

 

Whether that precipitation actually occurs, and whether it is enough to make a difference of course to the hard red winter wheat crops grown in the southern Plains…

 

‘Closer to being competitive’

 

In fact, soft red winter wheat futures for March were higher in Chicago, but by a modest 0.1% to $4.56 a bushel in early deals.

 

And Kansas City hard red winter wheat futures for March up 0.3% at $4.71 ¼ a bushel, outperforming a touch.

 

The gains (like those in cotton) came against a backdrop of a falling dollar, down 0.2% against a basket of currencies, so making dollar-denominated exports such as many agricultural commodities that much more important.

 

Along with price falls earlier in the week, “US wheat prices now look closer to being competitive,” said Tobin Gorey at Commonwealth Bank of Australia.

 

Data later will show how appealing US wheat was last week, with export sales expected at 200,000-450,000 tonnes, compared with 393,437 tonnes last time.

 

‘Little confidence in forecast rains’

 

Allowance is being made for a lower US soybean export number, of 450,000-750,000 tonnes, at best matching the 743,223 tonnes reported the previous week.

 

But then prices have been on a winning streak, boosted by worries over dryness in Argentina, where some rain is expected this weekend and next week.

 

However, Benson Quinn Commodities noted that “there is little confidence in rains in extended models after last weekend’s rain totals and coverage disappointed”.

 

And CBA’s Tobin Gorey said that even the rain forecast not “anything like soaking rain” needed within the next fortnight “to arrest a big drop in yield”.

 

‘Will maintain stress’

 

Indeed, Radiant Solutions said that “showers may become a bit more widespread early next week, but significant rainfall is not expected across most of the major growing areas in Argentina.

 

“As a result, further net drying of soils is expected over the next week, particularly in Santa Fe, Entre Rios, Santiago del Estero, and Cordoba.

 

“The continued dryness across Argentina will maintain stress on the corn and soybean crops, especially with temperatures increasing again.”

 

No wonder that, as Benson Quinn Commodities said, “many private analysts’ are trimming estimates south of 50.0m tonnes and if Argentina misses rains next week this number moves lower again”.

 

Mike Mawdsley at First Choice Commodities said that “some think production cuts could approach 2012 levels”, ie 40m tonnes for soybeans and 21m tonnes for corn.

 

That said, “current estimates for Argentina are 48m-49m tonnes for soybeans and 37m-38m tonnes for corn”.

 

Brazil setbacks

 

Furthermore, Benson Quinn noted that in Brazil “heavy rains are starting to hurt the quality and quantity of the bean crop, with many pushing harvest on wet beans to get ahead of deterioration”.

 

That said, while “this crop seems to be no longer getting bigger”, estimates are “steady around 114m-115m tonnes”.

 

Mr Mawdsley said: “Brazil couldn’t make up for 2012 type of losses in Argentina, if those come to fruition,” adding that “it does make for some exciting market action that we weren’t expecting a few weeks ago”.

 

Still, soybean futures for March added a further 0.3% to $10.19 ¾ a bushel, setting a seven-month high for a spot contract, and taking above 7% gains so far this year.

 

Again, soymeal, of which Argentina is the top exporter, fared better, gaining 0.4% to $371.50 a short ton for March, hitting a fresh 19-month high.

 

‘Significantly revising down forecasts’

 

Corn futures, meanwhile, held at $3.67 ¼ a bushel for March, maintaining some reluctance for gains, with concerns over the potential for substantial producer selling at higher prices, and the need for export sales, balancing out worries over Argentine output.

 

“Analysts are now significantly revising down their forecasts of Argentinean production,” Mr Gorey said.

 

“Given the bleak outlook for the rest of February we see merit in the analysts’ sub-40m tonne forecast,” compared with a current US Department of Agriculture figure of 42m tonnes.

 

US corn export sales data later are expected at 1.0m-1.5m tonnes, down from 1.77m tonnes last time.

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