Cotton rally on Trump effect fizzles out

Cotton rally on Trump effect fizzles out

A rally in cotton futures – attributed to the “Trump effect” – faded alongside gains in many other markets, as investors adjust to the landscape exposed by the surprise result to the US presidential elections

Cotton futures for March stood 0.9 % lower at 69.20 cents a pound in late deals in New York, falling back below a series of moving averages – and mirroring fallbacks in many other risk assets.

Indeed, the contract had reached a six-week high of 72.08 cents a pound earlier, taking to nearly 5% its gains since Donald Trump was early on Wednesday named US president-elect – making the fibre a particularly strong beneficiary of the post-election price surge.

In fact, cotton prices typically see seasonal weakness in November, Keith Brown, at Georgia-based broker at Keith Brown & Co, said. The earlier rally, “at a time when it should be going down”, was down to a twin boost of both relief and fear.

Anticipatory buying

Some of the buying had been motivated by concerns over that Trump, who during his election campaign railed against free trade agreements such as Nafta, would usher in trade wars, with investors stepping in to secure cotton supplies.”There is a lot of anticipatory buying on tariff worries,” said Mr Brown, adding that Yuan devaluation had played a role too, with China’s buyers stepping in for fear their currency may depreciate further. “But there is nothing to fear,” Brown added, saying that the “attitude of pessimism” which had initially been widespread after Trump’s election had now shifted towards “one of optimism. The US consumers are positive and there is an upheaval for good,” he said.

Lower production

The cotton price rally also follows data on Thursday showing an increase in US cotton exports last week, to a total of 181000 running bales.

“Sales again exceeded the weekly pace required to match the US Department of Agriculture’s export target” of 12.0m bales, said Louis Rose at the Rose Report, although noting that actual shipments were notably lower, at 151000 running bales.

Cotton futures fell back as the US Department of Agriculture upgraded ideas of production in Texas, as well as India.

In its latest monthly Wasde report, the USDA saw US cotton production at 16.16 million 480-pound bales, up from an estimate of 16.03 million bales made in October.

This was down to a sharp rise in prospects for the crop in Texas, the top US cotton-growing state, partially offset by decreases for production the South East.

Prices take a tumble

US ending stocks were seen at 4.50m bales in 2016-17, up from an earlier forecast of 4.30 million bales.

And, at a global level, the USDA lifted supply hopes too, raising estimates for production and season-end stocks, mainly due to a 500000 bale increase for the India crop, bringing world production up to 103.3 million pound bales.

World cotton stocks were seen ending the season at 88.3m bales, an upgrade of nearly 1m baes from last month’s forecast.

Prices fell back on the report, with December cotton futures in New York dropping from 69.08 cents a pound ahead of the briefing to 67.87 cents a pound immediately afterwards. December futures later recovered some ground to stand at 68.27 cents a pound in afternoon deals, a drop of 0.7 % on the day.

Indian importance downplayed

Indeed, cotton analyst Louis Rose, speaking to Agrimoney, said the higher global ending stocks figure was “not a concern. Most of the increase has come from India, which not major exporter,” said Rose. Moreover, India exported low-quality cotton, while the US exported a high-grade version. As India is not exporting to Pakistan, there won’t be a great impact to markets,” Mr Rose said. A 1 million bale rise may seem a lot, but it isn’t,” he said.

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