The cotton market is proving somewhat eventful, prompting appearances from the Cat in the Hat and Ralph Lauren.
Ralph Lauren has been a somewhat negative influence for prices of the fibre, reporting a 5% drop in sales, year on year, for its fiscal first quarter, hurt by everything from a strong dollar to the US West Coast ports dispute to an unusually cold winter.
The result “is not encouraging”, said Louis Rose at the Rose Report.
However, the last session saw a recovery from early lows nonetheless – in a revival worthy of a Dr Seuss book.
“Monday was a ‘Cat in a Hat day’ – mess reigned and then an equally frenetic clean-up left the scene pristine in time for the closing bell,” said Tobin Gorey at Commonwealth Bank of Australia.
The fact that December futures ended up just 0.3%, at 61.96 cents a pound, “belies the swings in prices” that the session saw – with the contract swinging from a low of six-month low of 61.50 cents a pound to an intraday high (up 1.8%) of 62.90 cents a pound.
Chart signals
Still, arguably the important thing was that the contract ended higher at all – so completing a so-called “outside day, up”.
That means that futures traded beyond the range of the previous session but closed higher, and is a positive technical signal – to counter some of the more negative chart dynamics around.
“The standard technical bias for the front month remains bearish with the December contract again settling well below all of its most-referenced simple moving average periods,” said Mr Rose.
Furthermore, “money flow into the December contract remains bearish as it trades within and below the lower portion of the 60-day regression channel”.
‘Too little rain’
Certainly, cotton managed some gains in early deals, adding 0.2% to 62.10 cents a pound for December delivery as of 09:40 UK time (03:40 Chicago time), given an extra help by US Department of Agriculture data overnight showing a 1-point decline to 56% in the proportion of the domestic crop seen as “good” or “excellent”.
Thanks to dryness, the rating in Texas, the top crop-producing state, eased 1 point, with more significant drops in the Mississippi Delta states.
And there looks to be more of this on the way, with Mr Gorey saying that “weather forecasters continue to forecast too little rain in a hot and drying US Delta, especially the north.
“US southern plains cotton areas are also on a drying trend that will add the region to the watchlist unless rain develops in the more distant days of the forecast window.”
Big report ahead
Then there is Wednesday’s crop report to consider, with the USDA to release its monthly Wasde report, a highlight of the agricultural commodities calendar, and expected for cotton to see a small reduction, of 40,000 bales to 4.16m bales, in the estimate for the US carryout for 2015-16.
For the global carryout, conversely, the figure is expected to be nudged higher by 600,000 bhales to 108.7m bales.
That it not the only one of the potential conundrums taxing ag investors ahead of the Wasde, with some of the forecasts for the big Chicago-traded crops offering a puzzle too.
For US corn, for instance, while the average analyst expectation is for the USDA to cut its yield forecast by 2.3 bushels per acre to 164.5 bushels per acre, the range of forecasts is large, at 160.4-167.5 bushels per acre.
Unchanged rating
Indeed, with uncertainty ahead, investors baulked at extending corn’s gains of the last session – especially when the USDA crop progress data overnight showed the US crop sticking at 70% “good” or “excellent” rather than showing the small decline the market had expected.
Improvements in Minnesota and Nebraska corn balanced deterioration in the likes of Missouri and Wisconsin.
Usually, the crop would be expected to deteriorate at this time of year. But the failure to this time closed to 3 points the ratings gap with last year’s crop, which turned out to have a record yield.
After the data, Terry Reilly at Futures International advised investors to look for lower early trading in corn “the unchanged headline good or excellent corn conditions, and as traders square positions ahead of the Wasde report”.
Prices fall
In fact, corn for December indeed dropped, by 1.1% to $3.96 ½ a bushel for December delivery, falling back below the 50-day moving average gained in the last session, as investors booked some profits after the last session’s strong gains.
Fellow row crop soybeans fell 0.9% to $9.85 ¼ a bushel for the best-traded November lot, which managed to stay above major moving averages, bouncing earlier off its 40-day line.
The USDA report overnight also defied expectations by leaving the soybean condition rating unchanged, at 63% rated good or excellent.
While soybean crops declined in the heat-hit Delta states, they recovered in the likes of Missouri and Ohio.
Wheat eases
As for wheat, the overnight report showed a US winter wheat harvest that is all but finished, while the spring wheat harvest speeds ahead, at 28% complete compared with an average of 20% at this time of year.
While spring wheat condition deteriorated a touch, by 1 point to 69% rated good or excellent, that is expected at this time of year, and talk remains of strong harvest results.
Soft red winter wheat for September fell 0.6% to $5.22 ½ a bushel in Chicago, giving back some of its strong gains of the last session, while Minneapolis-traded spring wheat eased by 0.1% to $5.33 ½ a bushel.
Palm up
The dollar was mixed against currencies overall, providing little direction to dollar-denominated ags, which become more affordable as exports as the greenback rises, and vice versa.
Still, the dollar did manage further headway against the Malaysian ringgit, which hit a fresh 17-year low, helping Kuala Lumpur palm oil add 0.6% to 2,041 ringgit a tonne.
The vegetable oil fell in the last session after data showed Malaysia’s palm oil stocks rising by 5.3% month on month to 2.27m tonnes, a far bigger increase than the 1.6% investors had expected.
While Malaysian palm oil exports last month, down 5.6% at 1.60m tonnes fell less than investors had expected, production, up 2.9% at 1.82m tonnes rose faster than predicted.
Still, disappointment at the data was tempered somewhat by statistics from cargo surveyors showing a strong start to August for Malaysian palm exports, up by more than 50% month on month in the first 10 days, helped by the weak ringgit.
