Are cotton futures heading for a fall?
It isn’t just grain markets that closely watch the US Department of Agriculture’s monthly Wasde crop reports, the latest of which is due later on Thursday.
There are some ideas that, for cotton, data in the report could bring an end to market conditions that Ecom likened to a “game of tennis with prices moving back and forth 60 points [0.60 cents per pound] with the mean price being around 68.50 cents per pound”.
After the Wasde, which issues revised estimates for world crop supply and demand “we expect to see volatility pick up” the trading house said.
‘Running for the exits’
Not that investors are expecting big changes in the Wasde, with the market forecast (according to a Bloomberg poll) for a 200,000-bale downgrade to 5.60m bales in the estimate for the US stocks at the close of 2017-18.
The world stocks figure is seen taking a bigger downgrade, of some 800,000 bales to 91.6m bales, although it is US dynamics which really move New York prices.
But, while flagging “mixed opinions” overall as to what the Wasde will hold, Ecom added that “I can tell you right now the speculators are hoping for a reductions to the numbers as then they may get their long await price spike.
“If the USDA surprises the market with a larger number, then expect the market to be down at least 1.50 cents per pound as the speculators will be running for the exits.”
Production estimates vs prices
Tobin Gorey at Commonwealth Bank of Australia also highlighted the potential for a drop in futures, noting that “prices are higher now than when US crop forecasts were 10% lower”.
Still, in early deals (09:30 UK time (03:30 Chicago time), the New York December cotton futures contract stood just higher, up 0.01 cents at 68.64 cents a pound, after earlier failing in an effort to break above its 100-day moving average, at 68.81 cents a pound.
The market will also later have weekly US export sales data to negotiate, which Louis Rose at Rose Commodity Group said were “likely to be near unchanged to somewhat lower” than those last time, given “price, currency and other pertinent data.
“Still, this is the time of year when US export sales seasonally increase,” Mr Rose added.
In fact, grains managed more price movements in early deals than cotton, even though volatility here was generally – but not universally – modest.
Still, even small moves can be significant, such as the 0.2% gain in Chicago soybean futures for January which took the contract to $10.00 ¾ a bushel, crossing back above the psychologically important $10.00-a-bushel mark (above which it has not closed for more than three weeks).
There was plenty of news on soybeans stemming from top importer China early on, with Chinese buyers signing letters of intent to purchase to buy an additional 12m tonnes of the oilseed in 2017-18.
While a big number, it should be note that these agreements – timed to coincide with the visit of US President Donald Trump to Beijing – are non-binding, and viewed as largely just adding frills to deals that would have happened anyway.
Also, China’s agriculture ministry, in its monthly Casde crop report, raised its forecast for the country’s soybean imports in 2017-18 by 1.47m tonnes to 95.97m tonnes.
The revision took the figure 2.48m tonnes above last year’s total, and a current USDA estimate of 95.0m tonnes too.
On China’s Dalian exchange, soybean futures for January showed decent volatility but ended up just 0.1% at 3,668 yuan a tonne, continuing to make heavy weather of recovering from a contract low of 3,608 yuan a tonne set nine sessions ago.
Back in Chicago, corn futures were stationery, at $3.48 ¼ a bushel, ahead of a Wasde expected to lift the estimate for the US yield this year, but reduce estimates for crops elsewhere.
The estimate for Brazilian production is seen being downgraded by 1.6m tonnes to 93.4m tonnes, according to an investor poll, with Terry Reilly at Futures International noting “at least one trade estimate is as low as 86m tonnes”.
The Argentine crop is seen being cut by 200,000 tonnes to 41.8m tonnes, with some investors foreseeing cuts to Ukraine’s crop too, after a downgrade by UkrAgroConsult earlier this week.
(More on pre-Wasde estimates for US corn and soybeans can be found in Markets Extra.)
Spring wheat springs
It was again Minneapolis hard red spring wheat which provided the interest in grain markets, adding 1.8% to $6.55 a bushel for December delivery, amid the ideas that the US harvest this year was smaller than the USDA believes, as reported by Agrimoney on Wednesday.
But Chicago soft red winter wheat futures fared less well in adding 0.5% to $4.28 ¾ a bushel for December, allowing its discount to higher protein Minneapolis spring wheat hit, December basis, levels not seen since August.
Also of interest is that the chart for this gap closed above its 100-day moving average in the last session for the first time since September.
Kansas City hard red winter wheat futures for December added 0.5% to $4.29 ½ a bushel, maintaining their newly-rediscovered premium over Chicago.
On the theme of data later, Brazil’s Conab will also release data on domestic crops (ahead of the Wasde).
And the USDA will release export sales data for last week expected for all-wheat to come in at 350,000-550,000 tonnes, beating teh pervious week’s total.
For corn, they are expected at 1.20m-1.50m tonnes for 2017-18, and 500,000-700,000 tonnes for next season.
And for soybeans, they are seen hitting 1.30m-1.50m tonnes for the current season.
(Source – https://www.agrimoney.com/news/morning-markets-soybean-futures-top-10-will-cotton-speculators-run-for-the-exits–42058)