Cotton futures settled on steep losses on huge volume Wednesday after China announced plans for retaliatory steps — including the fiber crop — against U.S. tariffs.
May lost 238 points to close at 79.64 cents, in the lower third of its 369-point range — established by early morning — from up 29 points at 82.31 to down 340 points at 78.62 cents. It fell below lows of the prior five weeks and finished on its lowest close since Feb. 22.
July shed 229 points to settle at 79.72 cents, trading within a 365-point range from 82.20 to 78.55 cents. December closed down 118 pints to 76.82 cents, well off the low, but still in the lower half of its 210-point range from 78-to-75.90 cents.
Volume soared to an estimated 90,376 lots from 46,886 lots the previous session when spreads accounted for 24,506 lots or 52%, EFP 222 lots and EFS 141 lots. Options volume rose to 13,079 lots (4,307 calls and 8,772 puts) from 5,096 lots (1,671 calls and 3,425 puts).
Traders will watch for USDA’s export sales-shipments report for the week ended March 29, set for release at 7:30 a.m. CST on Thursday, though it has been upstaged by the rapid escalation of trade war fears.
U.S. upland export sales the last four weeks have averaged 337,000 running bales and shipments have averaged 450,500 RB, down from 365,100 RB and up from 342,300 RB, respectively, the prior four weeks.
China now ranks as the second largest export buyer of U.S. cotton this season — behind Vietnam — on purchases of 2.44 million RB of upland and Pima combined, including around 900,000 RB in outstanding sales.
The purchases by China are 16% of overall 2017-18 export sales. And China is the largest buyer for shipment next season of 709,500 RB, which represents 25% of 2018-19 export commitments.
Overall, exports are projected to account for 81.5% of the current U.S. 2017-18 export estimate. Many analysts have expected USDA to raise the estimate in its April 10 supply-demand report, based on big commitments and quickening shipments, and with strong global demand helping to counter competition from foreign producers.
However, trade war fears spurred talk of potential cotton export sales cancellations. Exports of U.S. raw cotton to China last year totaled $5.8 billion, according to government data.
The new list of proposed 25% reciprocal tariffs would hit U.S. agriculture hard, with soybeans, wheat, corn, sorghum, tobacco and beef also among 106 products ranging from aircraft to chemicals targeted by Beijing. China already had announced a 25% hike on fresh pork products.
Some money managers were quoted as saying they think the tariff proposals are negotiating tactics and expect the United States and China eventually to work out a compromise.
However, many in agriculture dislike the tactics, to put it mildly, amid concerns that decades of efforts by commodity groups to build demand could be jeopardized.
Futures open interest fell 4,324 lots to 277,835 on Tuesday’s cotton rally, with May’s down 9,376, July’s up 2,031 lots to 78,836 and December’s up 2,755 lots to 76,692. Certified stocks were unchanged at 57,224 bales.