Cotton extends gains into Friday futures trade, adds 0.3% as corn flags

Of the two notable commodities’ gainers Thursday – corn and cotton – only cotton managed to extend gains into Friday futures trade as its price for May futures added 0.3 percent to 85.38 cents a pound in New York, while corn eased back 0.3 percent to $3.91 ½ a bushel in pre-weekend profit-taking.

Cotton has received support from a 500,000-bale downgrade by the United States Department of Agriculture (USDA) in Thursday’s monthly Wasde crop report

The downgrade reflected a cut to the US production forecast, and an upgrade to export expectations, which was in turn supported by separate data showing bumper shipments last week.

Cotton futures are now amongst their highest levels of the past three years or more and the Wasde data were, for instance, termed only “slightly bullish” overall by Rabobank, given upgrades to supply estimates elsewhere.

According to Rabobank, “US losses are more than offset by production increases elsewhere – namely Sudan and Australia – to increase global ending stocks by some 300,000 bales” to 88.85m bales as against last month’s estimate

Potentially supportive to cotton futures were separate US regulatory data released overnight, showing mills still having a large on-call commitment, of 32,991 contracts against the May lot, down 650 lots week on week, and 44,678 against the July contract, a rise of 1,825 lots.

The prospect of a squeeze on these positions has been a big attraction to speculators of placing long bets on cotton.

However, Chicago corn future eased back 0.3 percent to $3.91 ½ a bushel in pre-weekend profit-taking, after ending the last session at a seven-month closing high.

And that boded ill for values of other grains, given that corn emerged from the Wasde with “bullish” credentials, according to Rabobank.

“The USDA did produce some surprises,” Tobin Gorey at Commonwealth Bank of Australia noted, adding that they forecast a rise in US ethanol use and US exports of 50m bushels and 175m bushels respectively.

“US corn supply is thus forecast to tighten,” with the USDA cutting by 225m bushels, to 2.127bn bushels, its forecast for US carryout corn stocks from 2017-18 – the first fall in five years.

The prospect of a squeeze on these positions has been a big attraction to speculators of placing long bets on cotton.

There was equally cause to believe that further bullish revisions could be in the offing for corn, given that these US estimates factored in crops of 36.0m tonnes in Argentina (a downgrade of 3.0m tonnes) and 94.5m tonnes in Brazil (downgrade by 500,000 tonnes), another rival exporter.

Both of these estimates were viewed as still generous by many observers, with Richard Feltes at RJ O’Brien, for instance, saying that the “USDA, between overstatement of corn production in Brazil and Argentina, may be 8-10m tonnes too high on South American corn production”.

Flagging “quite a spread” between a Brazilian corn crop forecast of 87.3m tonnes from Conab, and the USDA’s figure, he proposed that “trade will embrace Conab’s more bullish assessment until proven otherwise by favourable last-half-of March/first half of April rains during pollination”.

However, as a spur to profit taking in Chicago corn, CHS Hedging noted that after Thursday’s “rally the relative strength index in corn has gone above 80, which is a technical sign of an overbought market.”