The market was sharply lower Wednesday on fears of cancelations on Thursday’s exports-sales data, plus farmer fixation liquidation. A fair amount of producers held their crop on a price-later contract, taking a provisional payment. However, now the market has collapsed so deep that those fixation positions are generating margin calls from the merchant to the farmer.
So, the farmer’s choices are to either put up more money and ride the market or liquidate by fixating the cotton. We suspect many are selling out, which in turn causes the merchant to lift his long hedges, thus prices diminish.
Per aforementioned comments, there is a definite fear some foreign textile mills will either delay shipments of U.S. cotton or outright default on cash contracts as their nations are combating the coronavirus. There is nothing official, but in talking with U.S. gins, we understand many have been issued to “stand down,” as far as future shipping activities.
Coronavirus fears continue to uplift the U.S. dollar. Interestingly, the U.S. dollar, the Japanese and U.S. treasuries have become safe-haven markets, as traders ignore gold and silver. Of course, a stronger dollar make exports all the more hard to achieve.
For Wednesday, May cotton closed at 48.41 cents, down 2.72 cents, July finished at 48.22 cents, down 2.68 cents and December ended at limit-down, down 3.00 cents. Estimated volume was 50,849 contracts.