I was struck by the characterization of the cotton market in this recent article in the Delta Press:
Investors with little idea of cotton fundamentals continued to bully the cotton market into unheard of volatility and the biggest price swings in recent memory. The question for panelists at the Ag Market Network’s March 13 teleconference, is when supply and demand will calm the tempest.To be sure, cotton may be undergoing a simple chain reaction from acreage battle which began with corn and has now rippled into any crop that needs acres. The last few days have been tough for "fundamentalists" but not without happy opportunities for producers. If we decided to close markets to just investors who know what the fundamentals are we would definitely not like the outcome. And many of us may not be able to pass the test.
Right now, it’s not happening, according to Carl Anderson, professor Extension specialist emeritus, Texas A&M University. “If it was, then why are cash prices well below futures prices. I still believe in market fundamentals. I do not think it’s possible to change the economics of supply and demand over the long run.
“However, over the short-run, a lot of things can happen and we hope they’re not severe enough to damage the entire marketing section of the U.S. cotton industry.”
Anderson noted fundamentals point to lower prices, especially for old crop cotton. Lagging export shipments led to USDA reducing U.S. raw cotton exports by a significant 1.2 million bales in its March 11 World Agricultural and Supply Estimates. That reduced expected exports from 15.7 million bales to 14.5 million bales, “and I wouldn’t be surprised to see that decrease another 500,000 bales.”
Declining exports would push carryover to 9.4 million bales, or about six months of cotton offtake for the United States.
Fundamentally, “this means there is no shortage whatsoever of U.S. cotton,” Anderson said. “The world surplus is not much better, with USDA raising world carryover almost 2 million bales from February to March. Textile demand is weak and getting weaker. World stocks are also close to six months use.”
Anderson says the United States still appears ready to produce less cotton than last year, even with the run up in prices. “I doubt that 90-cent futures last week (March 3-7) bought many acres because not many people could lock in that 90 cents with a reasonably-priced option or contracts just dried up.”
Texas A&M Extension specialist John Robinson says usually one would expect the market to calm down after the spike in prices like the one that occurred in early March. But the market continued to have volatile aftershocks for several days. [More]
Besides how do we really know those "bullies" don't know something about future production that others don't?
It's an odd bully that forces you to take his lunch money.