By admin       2017-11-13

Corn and cotton futures continue to beat the bears. The US Department of Agriculture’s Wasde crop report on Thursday offered investors an excuse to take prices of both down a few notches, raising estimates for US production to well above forecast level. 0However, both contracts, while falling in the last session, recovered in this one – albeit for different reasons. For cotton - while the Wasde was termed “bearish” by the likes of Rabobank, which highlighted “an unexpected hike” in the US cotton harvest estimate - the report at least offered the prospect of some price support in cutting the forecast for world ending stocks, And by 1.5m bales to 90.88m bales, more than investors had expected. ‘Supportive to bullish’ Louis Rose at Rose Commodity Group focused on an upgrade in the Wasde, by about 1.25m bales to 119.25m bales, in the USDA’s estimate for world consumption of cotton in 2017-18. This upgrade “is supportive to bullish, and we believe that much of the market’s resilience is rooted in strong demand for raw cotton”, Mr Rose said. And, after all, the US is still having no trouble shifting cotton at these prices, with sales of some 219,000 running bales last week, meaning that the US has sold 63% of cotton needed to meet the USDA target for 2017-18, less than 30% of the way through the season. Rabobank itself noted the support to demand prospects from demand prospects, “with continued global economic growth, plus a narrowing cotton/synthetic fibre price spread, amid higher prices of crude oil”, the basis of the likes of polyester. Cotton futures for December stood up 0.9% at 68.87 cents a pound in lunchtime deals in New York, more than recovering losses in the last session, and indeed, crossing back above their 100-day moving average. Lack of sellers Corn could not come close to regaining ground lost last time. But it did add 0.6% to $3.43 ½ a bushel for December in Chicago with half an hour or so of trading to go. Here it is the lack of sellers which appears to be supporting the market, with prices deemed too low to appeal to producers, and with hedge funds having already put on a stack of net short positions, even ahead of the Wasde. There is much speculation that the extra 24,000 lots of open interest in corn futures in the last session represented only an increase in fund shorts to a number that looks too crowded. ‘Game of chicken’ The increase in open interest “points to fund selling and revives the debate about whether or not the funds are too short in corn”, said Benson Quinn Commodities. Tregg Cronin at Halo Commodity Company said that “funds are large net shorts and it comes down to a game of chicken between under-sold farmers and over-sold funds,” which growers appeared to be winning for now. “Farmers usually have the better staying power.” Still, the game of chicken between farmers and funds is not over yet, and Richard Feltes at RJ O’Brien flagged that history suggested lower prices ahead. “Recall that a bearish USDA November 2016 [Wasde] crop report was followed by autumn price lows in December corn futures and January soybean futures on November 14. “I suspect lower lows are still ahead.” ‘Net drying may return’ In fact, January 2018 soybean futures were trading higher too on Friday, rebounding 0.3% to $9.88 ¼ a bushel in Chicago, amid niggling worries over whether Brazilian growing areas are getting enough rain. “Overnight rains in Brazil were confined to Goias northern Sao Paulo,” said Terry Reilly at Futures International, with top growing state Mato Grosso where precipitation appears particularly needed. In fact, “Mato Grosso and surrounding areas will see rain over the next two days,” Mr Reilly said, adding that this “will be important to watch”, and that “net drying may return for the balance of November into early December” for central and northern Brazil. This when the chances of La Nina, which is associated with dry central Brazilian conditions, are increasing with the US NOAA saying on Thursday terming at 65-75% the chance of a La Nina kicking in this (northern hemisphere) winter. Importers buying Meanwhile, wheat again proved the leader in Chicago, adding 0.8% to $4.32 ½ a bushel for December delivery, having emerged relatively unscathed from the Wasde, and indeed with strong US export data reported on Thursday. Indeed, the contract is looking at its best weekly performance in nearly two months. Algeria bought 210,000 tonnes of wheat, reminding of end-user demand at current prices, after Egypt’s 120,000-tonne purchase on Wednesday, and big purchases of US wheat by Iraq - although France is a more likely origin than the US for the Algerian order. Paris wheat for December edged 0.2% to E160.50 a tonne, restrained somewhat by strength in the euro, which cuts the competitiveness of eurozone exports. Futures vs cash But another trend, some see as supportive, in the US is the recent outperformance of higher-protein Kansas City hard red winter wheat, which added 1.1% to $4.33 ¾ a bushel, nudging higher its (more usual) premium over its Chicago soft red winter wheat peer. Indeed, higher protein wheat has continued to outperform in US cash markets too, with basis continuing to improve. Halo’s Tregg Cronin also noted a exchange data showing “20 hard red winter wheat receipts being cancelled out of Wichita, which takes the one-week total to around 208 if our count is correct,” and looks a sign of buyers turning to the exchange for supplies. “End users are buying old delivery receipts as deliverable supplies become the cheapest source of 11.0% protein wheat in the country.” ‘Global supply deficit?’ Back in New York, cocoa futures for December stood up 1.2% at $2,225 a tonne, earlier hitting $2,236 a tonne, the highest for a spot contract in nine months. As Commerzbank noted on Thursday, the main crop harvest in top producer Cote d’Ivoire “is making very sluggish progress”, with exporters “reporting significantly lower” deliveries of beans from producers to ports. “For the entire quarter until the end of December, exporters envisage a crop volume of 830,000 tons, which would be 108,000 tons less than in the same period last year,” the bank said, with rains spreading disease besides slowing harvest. There are even “rumours on the market that the current crop year 2017-18 could well see a global supply deficit”, a marked turnaround from the 371,000-tone surplus reported for last season by the International Cocoa Organization.

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