Cotton has been the only consistent bull market in agricultural commodities for more than 6 months. This was brought on by global economic growth, stronger demand and lower production expectations. Yield short falls are likely in Texas, where the worst drought since the 1950s threatens millions of cropland acres. An ugly weather wrinkle is rearing its head in China. Stirring new weather problems together with lower Chinese cotton production, add a bit of easing in trade tensions with the U.S. and we have the right ingredients for this bull market to continue.
2017 saw $5.8 billion in U.S. cotton exports, and China was the top destination. Futures on the Dalian Commodity Exchange have surged to a 4 year high after bad weather hit crops in Xinjiang, the #1 producing region. Declining stockpiles may cause China to
import more cotton from the U.S.
The map below shows the above normal rainfall that has hit key China crop regions in the last few weeks. Re-plantings will be necessary, but, based on our forecast, wet weather could reduce crop yields in the weeks and months ahead.
COMMODITIES THAT WILL WIN FROM TRADE WAR TRUCE WITH CHINA
Which commodities will benefit from a trade truce with China? An interesting article can be found here
Once again, weather will be a key factor in major Ag products. Hence, I expect the traders will soon begin to focus on what spring and summer weather has in store for growers.
For more information about how to trade cotton futures or the ETF (BALB), and what our forecast is for global production this year, please email us here