The week started with a brief flight of the cotton price very close to 1 euro (over 1 euro plus the variety premium) boosted by the weak euro, before landing at 95 minutes.
For a while at 1 euro, Wall Street pressures and cotton with contracts up to 95 minutes
Finally, the pressures from the negative climate in the global economy also passed to the indices of the New York commodity exchange, although for some sessions the commodities showed a remarkable resistance to the fall of the shares. In fact, on the evening of Tuesday, August 30, the cotton exchange narrowly escaped the limit down to finally retreat, until the end of the week at 108 – 110 cents per pound from almost 118 cents, with which it started on August 29.
Shortly before the exchange rate lost the support of 115 cents and then 110 cents per pound, cotton seed futures contracts in Greece touched the 1 euro zone again, mainly boosted by the exchange rate of the euro against the dollar. As late as Tuesday, August 30, the report had several ginners picking up the phone to secure quantities from the upcoming crop, offering a close price of close to 98.5 cents per kilo for delivery to the gin, which along with the variety bonus (3 cents ), breaks the 1 euro barrier. Already in the previous days, there had been strong interest from producers to lock in some of their expected production at these price levels, especially for those who had not taken advantage of the 99.5-minute opportunity that appeared for less than a week at the end of May, a little before the big correction that pulled the price for the Greek group below 70 minutes.
Price reservation with a penalty of 4 minutes
The offer of the Karagiorgos gins had an impact in the circles of the producers, which started with an open lower price at 94.5 cents per kilogram to be formed towards the end of the week at 91 cents. Specifically, the Karagiorgou company announced a closed delivery price to the gin at 98.5 cents per kilogram last Monday, while the price dropped to 95 cents on Thursday. However, with a penalty of 4 cents, producers are given the opportunity to lock in a minimum guaranteed price (it reached 94.5 cents and has fallen to 91 cents now) in case the market falls below this level, while if it eventually continues the rise, they will be able to close at the price they want minus 4 minutes. At the same time, the Markos gins announced a delivery price of 92 cents per kilo last Thursday. The price of 99.5 cents announced at the beginning of the week by the Enipeas Agricultural Cooperative in Farsala is also of interest. Other Producer Groups have also approached this level (not counting variety or seed production bonuses here) since they chose not to charge brokerage (about 1 to 1.5 cents per kilo) to their members.
Broadly speaking, the picture from the domestic cotton belts has ginners trying to close volumes with well-organized producers, offering favorable pre-sale terms, in an effort to “beat” the competition. Thus, the prices that are heard show slight differences depending on the type of contract, the quality premiums and the producer.
Pre-sales with a view to the macro
The anxiety of the ginners described by interlocutors of Agrenda and Agronews regarding pre-sales seems, however, to be firmly in line with the actual conditions of the market. The opportunity for a pre-sale price close to 1 euro or above (along with the variety/quality bonuses) cannot be taken lightly. This is because the data in the global economy look ominous, especially after the declarations of the central banker of the USA, Jerome Powell, a few days ago to maintain the aggressive policy of the Central Bank, which is expected to announce a new increase in interest rates in the following days. This estimate, which had been timely formulated in Agronews and also in the last paper of Agrenda, was confirmed within a few 24 hours, in a clear indication of the intense volatility of the market during this period.
Perhaps affected by the excitement, some producers are expecting 1.05 or 1.10 euros per kilo in order to close, but based on the current market data, there are no convincing indications that this can happen.
The harvests are small
In the case of cotton there is no doubt that the fundamentals remain on this basis supportive of its price. The small harvest expected in the US due to the drought damage suffered by the crop in Texas, is becoming a good reason to strengthen the price. At the same time, problems are looming for India’s upcoming crop due to heavy rains at the last stage of plant growth and insect infestations. On the other hand, concerns about the course of the global economy, which can affect the demand for fiber, cannot be ignored. The last time demand stress outweighed supply was last June, a month in which the cotton market lost 50 cents a pound in almost a matter of weeks, with December contracts falling from 132/134 cents in the zone of 80 cents. Perhaps for this reason, the international price of cotton, despite the fall in the stock titles in the USA, was maintained at the same levels.
On the steps of Wall Street
Although the cotton market initially showed some remarkable resistance, the moment the whole of Wall Street dressed in red to follow in the following days, the stock markets in Asia and Europe. While the market had initially been hoping that the Fed would relax its aggressive stance on interest rate hikes, Powell made it clear that this is not going to happen and everyone is now expecting more hikes in September, which will be followed by the European Central Bank. In a mix of high inflation and rising interest rates, worries about consumption are once again a catalyst for commodity markets, with oil already trailing equities.
At such a juncture, however supportive the upcoming crop data may be for the cotton price, the bullish channel in the said market narrows and becomes shallower. There have already been reported pressures in the clothing industry to cut prices in the US, which may translate into a first indication of a mood to curb consumption.