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Agri Commodities Update: cotton's resolve begins to fray

Cotton futures fell on Friday as the weekly positions report showed that investors have begun to make sharp cuts to their large long position.

Currencies

The US Dollar recorded a mix of gains and losses against the other agri-exporters on Friday.  The Australian Dollar took a tumble against the greenback.  The Aussie dropped about three quarters of a cent to end the week at 76.25¢.

Grains & Oilseeds

  • Global wheat futures were largely unchanged in Friday's trading.  The market did see a jump in prices early on but that first ground to a halt and was then reversed.  US winter wheat prices have largely steadied during August, resulting in less pressure on Australian prices.
  • ASX East January wheat futures continued to inch away from season lows to close Friday at 236$.  At those levels Australian wheat continues look very competitive on a global basis.
  • Corn futures closed a shade higher Friday on the back of investor short covering.  Widespread rain across the Midwest over the weekend will continue to support strong US production potentials.  Nevertheless, the market retains some doubt that yields will be quite as high as forecast.
  • Soybean futures prices fell sharply in early Friday trade.  The market managed to recover about half of those losses by the day’s end, boosted by news of another large sale of US soybeans.  Investors have continued to pare back their long positions as weather conditions in the Midwest are likely to remain near ideal during the final stages of soybean development.  Conditions in the Delta region though are now becoming excessively wet.  If a forecast drier period does not evolve later next week then quality declines may become a concern.  Canola futures fared better on Friday. Prices were supported by a sharp fall in the Canadian Dollar and so finished the day little changed overall.

Cotton

US cotton futures closed the week on a sharply weaker note.  Friday’s positions report revealed that investors have made deep cuts to what was a record long position.  Despite those cuts, the position is still very large and the rationale for momentum investors to maintain it remains under threat from improving crop weather.  The market looks somewhat precariously perched in our view.

Sugar

Sugar futures prices ended the week with a sharp fall.  The New York October-March spread continued to inch towards carry.  Trading volumes continue to be on the light side.  The position's report recorded a small drop in the investor long position.  The position nonetheless remains huge.  We are still over a month away from the October contract expiry. Then the physical and notional worlds will collide.  And ahead of that, investor's, should they choose too, will begin rolling their positions next month.  The two events should end the phony war of low volume, directionless volatility we have seen over the past fortnight.

Dairy

NZX WMP futures finished the week on a strong note.  Most contracts gained another US$30-50/tonne.

Learn More

For a more detailed snapshot of market conditions, or to get the daily market update direct to your inbox daily, visit Commonwealth Bank. Important Disclosures and analyst certifications regarding subject companies are at www.research.commbank.com.au.

This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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