Cotton price to tumble, despite production threats

by Agrimoney.com

Cotton experts have reinforced their forecast for a return to more typical conditions in the cotton market, saying that prices will become less volatile, besides suffering a "significant" decline from historically high levels.

The International Cotton Advisory Committee acknowledged that prospects for world production of the fibre had dimmed, cutting its output forecast by 300,000 tonnes to 27.3m tonnes.

Nonetheless, supplies would prove larger than had been expected thanks to bigger carryover stocks from this season, when higher prices are causing a bigger dent to consumption than had been thought.

"This season started with a firm demand from spinning mills, which were looking to rebuild their stocks depleted in 2009-10, but is ending with weaker demand," the influential intergovernmental group said.

Price impact

Indeed, the ICAC ditched expectations of a small rise in consumption this season.

ICAC cotton forecasts for 2011-12 and (year on year change) Area: 36.3m hectares, (+8%) Production: 27.3m tonnes, (+8.8%) Consumption: 25.8m tonnes, (+3.2%) Exports: 8.3m tonnes, (+3.8%) Year-end stocks: 10.2m tonnes, (+11.7%) Stocks to use ratio: 39.5%, (4.7 points)

And it forecast that while "use is expected to resume increasing in 2011-12, driven by a projected robust global economic growth and boosted by increased production", growth would be "moderated" by competition with artificial fibres, such as polyester.

With world stocks set to end next season at 10.2m tonnes, equivalent to nearly 40% of consumption, the ICAC restated a forecast that prices, as measured by the Cotlook A index, "will decline significantly" over the season, if "probably" remaining above the 10-year average of 60 cents a pound.

The Cotlook A, which measures a basket of physical cotton prices, is expected to average 165 cents a pound in 2010-11.

"It is also possible that price volatility, which has been extremely high this season, will decline in 2011-12, as increased global cotton supplies may give more confidence to market players," the committee added.

Drought threat

The forecast tallies with an outlook from Barclays Capital, which expects cotton prices "to decline in the second half of 2011 on higher global production".

"Global balances are likely to ease over the coming months, with year-on-year higher production across key cotton producers," BarCap analyst Sudakshina Unnikrishnan said on Thursday.

However, Rabobank analysts remain bullish on prices, at least over the summer, flagging the "production risks associated with recent prolonged adverse weather conditions", such as drought in Texas, the top producing state in America, which is the biggest cotton exporter.

The proportion of the Texas cotton crop rated in "good" or "excellent" condition was 33% as of Sunday, compared with 61% a year before, US Department of Agriculture data show.

More than 30% of the crop was rated in "poor" or "very poor" health – up from 3% a year ago.

'Positive bias'

"Given current new crop uncertainty in the US due to continuing hot and dry conditions, we expect price direction to maintain a positive bias in coming weeks," Rabobank said.

Luke Mathews at Commonwealth Bank of Australia added: "Forecasts that Texas will remain hot and dry though to Sunday continue to hold up the cotton market."

Nonetheless, cotton for July delivery has recovered some 13% from a mid-May low, despite losing early gains on Thursday to stand 0.3% lower at 160.44 cents a pound in New York at 12:15 GMT.

See the original article >>

China's soy crop to fall twice as far as expected

by Agrimoney.com

China's soybean harvest will decline twice as far has had been thought this year thanks to the better returns to be had from other crops, which will cut area devoted to the oilseed to the lowest of the century.

China's soybean harvest will fall by roughly 800,000 tonnes to 14.4m tonnes, US Department of Agriculture attaches in Beijing said.

The deeper cut than acknowledged in an official USDA estimate of a 14.8m-tonne harvest reflects the greater profits achieved in corn in 2010-11, at an average of $700 per hectare, than from soybeans, which earned farmers $500 a hectare.

"The difference has negative impacted some soybean planting decisions for 2011-12," the attaches said in a report.

Alternative crops

In the important producing province of Heilongjiang sowings are expected to tumble by 10-20%, particularly in central areas "where weather and growing conditions provide farmers more choices for grain crops", the briefing said, quoting information from "industry sources".

In other provinces, soybeans are expected to lose out to cotton, for which national sowings are expected to increase by 6.6% to 5.4m hectares, the China Cotton Association said on Thursday. The estimated rise in cotton area is, nonetheless, smaller than a 9.8% rise forecast in January.

China's overall soybean area, on a harvested basis, was pegged at 8.5m hectares, 200,000 hectares lower than the current USDA estimate and the lowest since 1999.

Import impact

The extent of the decline will exacerbate a production deficit in China, the world's top soybean consumer and importer.

Indeed, the attaches stuck by an estimate of 72.5m tonnes for soybean use in 2011-12, "due to increased use of oilseed byproducts in animal production, and higher vegetable oil consumption" as wealthier consumers eat more and better.

Consumption of all protein meals is expected to rise by 6% to 65.6m tonnes, fuelled by rising hog production, which has hit a three-year high.

However, the attaches declined to raise their forecast for China's soybean imports in 2011-12, standing by an estimate of 58.0m tonnes, of which 25.0m tonnes are expected to come from the US, and viewing the extra shortall being made up from inventories.

On target

China's soybean imports are a matter of market sensitivity, given their scope, accounting for nearly 60% of total world buy-ins.

The country imported 5.4m tonnes of soybeans in May, sufficient to keep the country on track to meet a USDA forecast for 2010-11 lowered to 54.5m tonnes.

US shipments export sales and shipments in the latest week were, at 412,000 tonnes and 163,000 tonnes respectively, above the pace needed to meet USDA forecasts.

See the original article >>

Near-term Correction in U.S. Treasury Bond Market Yield

By: Mike_Paulenoff

If the upmove in 10-year yield from the October 2010 low at 2.33% to the February 2011 high at 3.74% represents the first upleg of a new bull phase (higher yield), then all of the action since the February high is a correction that should be bought ahead of a resumption of the prior upmove.

It is with that in mind that we look to add to our model portfolio position in the ProShares UltraShort 20+ Year Treasury (TBT) into current/near-term weakness. 

See the original article >>

Traders are no more interested in holding positions

By Renisha Chainani

May month was divided into two half- where in first half, there was scenario of “SELL in May and Go away” and then in later half “Goldman Sachs spoke and Market listened”. The month of May began with investors heading for the exit as panic selling was seen across the whole sector. The combination of near record short dollar and long commodity positions had become so stretched that only a small spark was enough to light the fire.

In this case the spark came in the shape of silver. On the very first day of May, CME increased margins in Silver by 13% and bubbling market crashed 36% from $50 to $32 in just four trading sessions and the white metal took all commodities in selling mode. Investors remained sidelined in commodity markets after being rattled by a sharp price correction. Steep declines in silver futures quickly spread to other commodity markets, knocking gold off $1,500, crude oil below $100 and forcing copper below $4 a pound

Crude Oil extended selloff due to demand downgrades. Both the DOE/EIA and the IEA revised lower their forecasts on global oil demand this year. The IEA said that persistent high prices and weaker IMF GDP projections for advanced economies are dampening demand.

Then there were fresh concerns on the European sovereign debt situation as S&P downgraded outlook on Italy on weekend while Fitch warned that it may downgrade Belgium's AA+ credit rating. The Greek government, which finds trapped in a "refinancing hole", where the only choice left is to continuously endorse in EU/IMF demands to not default, had to step up the austerity measures again last Monday, announcing another package of public spending and the state sale assets. The Euro took center stage to make new lows against major rival.

Meanwhile, Energy and Metals gained support as Goldman Sachs and Morgan Stanley both raised oil price forecasts on prolonged losses of Libyan production due to conflicts in the region. Goldman Sachs noted that inventories and OPEC spare capacity will become "effectively exhausted" in a matter of time. All Commodities started recovering from its lows after Goldman Sachs called copper, oil and base metals to move higher. Many commodities gained, but the metals and energies are taking the lead and look like they have made the strongest turn higher on the charts.

Goldman Sachs identified copper as "an attractive opportunity" at current prices, advising clients to purchase the metal in a research note. The bullish call helped lifted prices, and continued to draw investment interest to the red metal. Copper also received a boost from worker protests Wednesday at Chile's El Teniente mine, the world's largest underground copper mine. Local media reported that about 1,000 contract workers protested working conditions and wages at the mine, owned by state-controlled Corporacion Nacional del Cobre de Chile.

Safe-haven interest was seen flowing into gold because of the current heightened worries over sovereign debt in the eurozone - notably Greece and Italy. There were advances elsewhere in the precious metals suite, with silver moving conclusively from $32 to $39. These uncertainties over the financial and monetary prospects in Europe will keep bullion markets on tenterhooks and prone to sudden price-swings, although gold may be able to decouple from the rest of the precious sector to some extent.

In my opinion traders and investors alike are apprehensive around these levels and are using economic data and Geo-political news to form their strategies day to day. It appears traders are not eager to hold positions and instead are quick to take profits when readily available. The market has been feeding off the U.S dollar strength versus the weakness of the Euro. The continued fragility in the European Union continues to drag on the Euro and therefore lending strength to the U.S Dollar.

See the original article >>

Russian wheat prices jump after export ban lifted

by Agrimoney.com

The rise in Russia's wheat prices since the lifting of the country's export ban may not - in practice - be as dramatic as has been made out, given merchants' strong bargaining power, a leading analyst has said.

The Russian Grain Union lobby group said that prices of fourth-grade milling wheat, the type used in exports, had soared by some 700 roubles ($25) to nearly 6,000 roubles ($215) a tonne since Vladimir Putin, the Russian prime minister, on Saturday unveiled the lifting of export curbs from July 1.

The rise could even be higher – at least, in terms of what farmers are asking for, Andrey Sizov, managing director of Moscow-based analysis group SovEcon, said, estimating the increase at 500-1,000 roubles per tonne.

"But that is an offer price. It is correct to say the offer price is going up, but that does not mean there is any trade going on at these levels," Mr Sizov told Agrimoney.com.

The Russian wheat market is being keenly watched abroad now that the country, a fierce price competitor, is returning to exports.

Iowa-based broker US Commodities said: "Russia currently has the cheapest wheat in the world. Russia's re-entry into the world grain markets will shift demand from the US in the coming months."

Strong hand

In fact, Russia's wheat market was likely to take a couple of weeks to adjust to the return to exports, as it did when the ban was announced last August, Mr Sizov said.

And prices then were likely to reflect merchants' bargaining power, after stocking up on grains since late April in expectation of a resumption in trade.

"They have enough stocks to export for now."

Indeed, it looked a buyer's market for now, with farmers needing to sell grains to raise funds for the rest of the spring sowings programme, and to finance the forthcoming harvest of winter crops.

"Merchants have strong negotiating power," Mr Sizov said.

'Grim yields'

The comments came as wheat prices continued to fall on international markets, pressed both by Russia's return to shipments and some rain in Europe, where dry weather has considerably reduced crop hopes.

Yields from the initial French winter barley harvest have come in at 3-4 tonnes per hectare, a result termed "grim" by one merchant, if not necessarily representative, so early, of the rest of the crop.

US meteorological service WxRisk.com said that weather models were indicating a "major rain event for France and Germany" next week.

"A major cold front moves into the northeast Atlantic on June 7 and as the front comes into France the UK and Germany this front brings in significant rains."

Australia & New Zealand Bank said: "In particular, this rainfall is timely for Germany, which is a later crop than in France, helping to limit yield declines at this stage."

Chicago wheat for July stood 1.1% lower at $7.74 a bushel as of 11:45 GMT, with Paris wheat for November down 1.4% at E234.50 a tonne.

See the original article >>

Is the Slow Economic Data Due to Japan or Something Deeper?

by Bespoke Investment Group

Over the last several weeks, we have been discussing the slowdown in economic data on both an absolute basis and relative to expectations. Within the investment community there is a debate over whether the slowdown is a temporary side-effect from the massive earthquake in Japan back in March, or part of a broader global economic slowdown. Ultimately only time will settle this debate, but a look at two widely watched economic indicators and how they reacted following the January 1995 Kobe earthquake shows that the recent slowdown is more likely a result of the earthquake in Japan, and therefore temporary in nature.

In the charts below we show the four-week average of US initial jobless claims and the ISM Manufacturing report going back to 1994. In each chart, the red line represents the six months following the 1995 earthquake and the months following the March 2011 earthquake. 

Before the Kobe earthquake in January 1995, the four-week average of initial jobless claims was steadily declining, and then immediately reversed higher when the earthquake struck. It then steadily rose for the next six months and did not peak until more than a year after the earthquake. The current pattern of jobless claims shows a similar one to 1995. As shown in the chart, the four-week average of jobless claims actually hit a post-recession low on 3/11, which was the day of this year's quake, and has now risen in eight of the ten weeks since then.

The ISM Manufacturing Index has also shown some similarities between now and 1995. In 1995, the ISM index declined for five consecutive months following the Kobe earthquake. In the current period, the ISM Manufacturing Index actually peaked in March and has declined in each of the two months since then.

While the two indicators highlighted below do not ultimately prove what has caused the recent economic weakness, they do show some strong similarities to the period following the 1995 Kobe earthquake. Furthermore, the fact that both indicators were hitting their best levels in several years leading up to the earthquake implies that the earthquake is making its presence felt in the data.

See the original article >>