From hero to zero, and back again.

Cotton futures, which turned from the best-performing major agricultural commodity in August to the biggest loser in both September and October, switched back to a top-of-the-table position last month.

And by a distance, with the fibre’s 19.5% surge on a spot contract basis in New York in November more than twice the headway achieved by the second-biggest gainer, raw sugar.

China fix

Cotton’s somewhat elastic performance reflects in part some recovery in sentiment on the world economy, to which the ag, as an industrial commodity, is particularly attuned.

It is no co-incidence that shares, as measured by the S&P 500, also had a strong month. As did raw sugar, palm oil and soyoil, all linked to biofuel markets.

However, cotton is particularly sensitive to economic considerations surrounding China, the top importer and consumer of the fibre, and where there has been some softening on the tough anti-Covid stance viewed as a big threat to growth.

Speculators wrong-footed

The extent of the fibre’s recovery also reflected a change of stance by hedge funds, which had shorted cotton futures and options heavily (the most since May 2020) over September and October, undertaking indeed their second-longest net selling spree on record – landing many with losses.

As the US Department of Agriculture said, “non-commercial traders held a significant number of short positions on the futures exchange before prices went limit-up for three consecutive days” early in November.

“The potential ‘short squeeze’ likely induced greater buying in the futures market and boosted prices.

“Moreover, the prospective convergence of spot and futures prices has also supported prices.”

‘Momentum of its own’

Cocoa futures were also supported by a short-covering wave, after a port strike in Ivory Coast threatened supplies from the top producer and exporter of the bean.

Managed money in the week to November 8 closed 23,488 short positions, the most on records going back to 2006, and indeed fuelling an 8% surge in cocoa prices over the week.

Hedge funds were caught out in raw sugar too, by reports of Indian sugar mills defaulting on supply contracts – forcing importers to return to the market, and attracting momentum buyers on top.

“The rally now has a momentum of its own as investors are being called in by the surge in prices,” Commonwealth Bank of Australia analyst Tobin Gorey said, as prices in mid-November hit a seven-month high.

Managed money was a net buyer of a record 88,753 raw sugar futures and options in the week to November 22.

Soft wheat

By contrast, grains suffered as the Ukraine grain export deal was rolled over, resolving for now that threat to world supplies, and winter wheat crops got off to a decent start in many areas, including the European Union.

The drought-hit US crop, after its record-poor start to the growing season, did improve its condition over the month – particularly Midwest-grown soft red winter wheat, explaining its lag versus hard red winter wheat, which continues to struggle for moisture in its southern Plains heartland.

London feed wheat’s weakness, meanwhile, was enhanced by a recovery in sterling against the dollar.

As for canola and rapeseed, their underperformance looks rather puzzling, particularly given the strength of fellow oilseeds – as GrainPriceNews pointed out last week in a positive call which was working well until early-December falls.