The spring storms, in terms of revived volatility of late in agricultural commodity markets, battered cotton most in the last session.
Initially, strong US export data sent New York’s May lot soaring to 79.18 cents a pound – the highest for a nearest-but-one contract since May 2014.
The US sold 481,400 running bales of upland cotton for 2016-17 – the biggest week for current-year sales since January 2015 – plus 62,900 running bales for next season on top, besides 8,500 running bales of pima for this season.
As Tobin Gorey at Commonwealth Bank of Australia put it, “sales volumes were huge, at over 500,000 bales”.
What is more, the sales were spread among a variety of importers, 21, although with China, Vietnam, Bangladesh and Turkey as the top four, as might be expected.
‘Opportunity to take profits’
All in all, as traders at Ecom noted, “the total was about 10 times the number of bales needed to be sold on an average weekly basis, to hit the current US Department of Agriculture, 12.7m-bale” export forecast for 2016-17.
So why did futures then fall back from their two-year high, retreating to 76.32 cents a pound at one point, before settling down 1.4% at 76.78 cent a pound?
“Investors naturally seized the opportunity to take profits,” Mr Gorey said, although adding that the revival at the end of the day could be evidence that selling pressure had blown over.
“Prices below 77 cents a pound should attract some bargain buying today.”
‘Last source of supplies’
… which was pretty much what seemed to be happening, to a modest extent, in early deals, when May futures were 0.3% higher at 77.00 cents a pound, as of 09:10 UK time (03:10 Chicago time).
And this despite the huge extent of certified stocks for delivery against New York futures, estimated at 325,590 bales as of last night (unchanged on the day).
Still, is that big enough?
Ecom said that cotton available for the US to sell was now “estimated to be down to around 5.5m bales”.
“If the export sales continue at the current rate, the certified stocks will be left as the last source of US high grade” cotton available.
Big week ahead
One factor worth cotton investors remembering is that Monday brings the opening day of the second season of auctions by China of fibre from its huge state reserves.
The auctions will offer 30,000 tonnes of cotton a day, although more could be released if demand warrants.
Next week is a notable one for grain markets too, in bringing the US Department of Agriculture’s monthly Wasde crop report, although March briefings are not usually among the most notable editions.
One factor which might be on the agenda is an upgrade to estimates for South American crops, with Informa Economics certainly impressed, and raising its estimate for Brazil’s soybean harvest by 1.5m tonnes to 108m tonnes.
That compares with a current USDA estimate of 104m tonnes.
For corn, Informa raised its estimate for Brazil’s production by 2.0m tonnes to 91m tonnes, taking it further ahead of a USDA figure of 86.5m tonnes.
The prospect of Wasde data is coming after a particularly turbulent time for grain markets, facing rumours, counterumours and denials over changes by President Donald Trump to US biofuel policy, and seeing a wave of first-day-of-the-month fund buying too.
Furthermore, there is growing concern at the recovery in the dollar, now back above 102 against a basket of currencies, after investors slashed the odds of a March interest rate rise by the US Federal Reserve.
“The dollar index has reversed course and moved into an upward channel since the beginning of February,” Joe Lardy at CHS Hedging.
“A really strong dollar can be a rally killer and long term provides some significant headwinds to exports.”
‘Should be very concerning’
And there are some concerns emerging about US exports ahead, besides the strong cotton data, with latest weekly data, on Thursday, viewed broadly as uninspiring for corn and soybeans.
“Old crop soybean sales are doing fine,” Mr Lady said.
“New crop is really a different story,” flagging that sales for the latest week came in at zero, below some forecasts as high as 200,000 tonnes.
“The pace of new crop sales should be very concerning to the market. At just under 1.5m tonnes, sales are over 2m tonnes behind the five-year average, and only 100,000 tonnes ahead of last year’s weak pace.”
‘Technicals still supportive’
Furthermore, dollar strength is seen as encouraging sales by Brazilian farmers who had been holding off crop hedging thanks to a recovery in the real, which cuts the value in local terms of assets such as soybeans priced internationally in dollars.
Richard Feltes at RJ O’Brien noted in the last session “stepped-up Brazil farm selling”, amid weakness in the real, which has retreated some 4% from a high reached against the dollar reached three weeks ago.
Still, with logistical issues remaining a problem in Brazil, slowing delivery of soybeans to port, US futures managed to recover a few of the losses of the last session, adding 0.2% to $10.39 a bushel for May delivery.
Corn for May, meanwhile, gained 0.2% to $3.80 ¼ a bushel.
“Technicals are still supportive,” Benson Quinn Commodities said, noting that the contract in the last session, “closed just above the 20-day moving average at $3.69 ¾ a bushel”.
It was left to wheat to show more definite direction, downward, with the May contract shedding 0.7% to $4.49 ¾ a bushel in Chicago, falling back below its 20-day moving average.
This after, in the last session, retreating following failure to test its 200-day line, now at $4.60 a bushel.
And losses might have been worse were it not, as Terry Reilly at Futures International said, that “dryness concerns across the US Great Plains limited losses”.
Bensons Quinn Commodities said it was “starting to hear more chatter about the dry conditions in the southern Plains.
“While this situation is a long way from being dire, the next couple of weeks look relatively dry.”
US vs rest of the world
In fact, for Kansas, the top US wheat-producing state, the proportion rated in drought by Thursday’s USDA Drought Monitor rose 11.1 points week on week to 37.3 points.
For Oklahoma, the proportion reached 73.1 points, up 5.2 points week on week.
Still, concerns over crops elsewhere in the world appear limited, with the UN FAO on Thursday forecasting a record 74m-tonne Russian harvest this year.
FranceAgriMer on Friday kept at an elevated 93% its estimate for the proportion of the French soft wheat crop in “good” or “excellent” condition.
And returning to the US, prices of hard red winter wheat, as grown in the US Plains, have failed to see fresh risk premium thanks to the dryness, with the March contract falling 0.5% to $4.68 a bushel in Kansas City.
(Source – http://www.agrimoney.com/marketreport/am-markets-cotton-recovers-from-sell-off.-wheat-struggles–3998.html)