Cotton drops to 22-month low in risk-off trade; coffee flat


Forexpros – U.S. softs futures were lower during early U.S. morning trade on Thursday, with cotton prices tumbling to a fresh 22-month low pressured by broader market risk aversion, while coffee and sugar prices held steady.

On the ICE Futures U.S. Exchange, cotton futures for July delivery traded at USD0.7678 a pound, shedding 0.25%.

It earlier fell by as much as 0.75% to trade at USD0.7631 a pound, the lowest since July 20, 2010.

Cotton’s losses came as appetite for riskier assets weakened amid lingering fears over a Greek exit from the euro zone, while fresh concerns over the fiscal health of Spain further weighed on sentiment.

Fears over the implications of a Greek exit from the euro zone continued as the country prepared for fresh elections next month, which could see anti-austerity parties take power.

Meanwhile, Spain successfully auctioned the full targeted amount of EUR2.5 billion at a government bond sale earlier in the day, but the country’s borrowing costs rose sharply, pressured higher by worries over the health of the country’s banking sector.

Reports surfaced earlier that Spaniards have withdrawn as much as EUR1 billion from Bankia, the nation’s third-largest lender over the past week, sending shares plunging by 30% in Madrid. The troubled bank was nationalized earlier in May.

The heightened sense of risk aversion prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to the relative safety of the U.S. dollar.

The euro fell to a fresh four-month low against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.2% to trade at 81.81, the highest since January 16.

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

Demand for cotton, as a non-food agricultural commodity, is seen as more closely linked to economic conditions and consumer sentiment than that for other farm crops.

The fiber has plunged nearly 65% from a record USD2.1385 a pound hit in March 2011, as higher prices prompted farmers to plant more crops and demand in top consumer China slowed.

Meanwhile, sugar futures for July delivery traded at USD0.2076 a pound during early U.S. morning trade, shedding 0.45%.

The July contract traded in a tight range between USD0.2091 a pound, the session high and a daily low of USD0.2073. Prices fell to USD0.2007 a pound on May 14, the lowest since September 1, 2010.

Sugar prices have been trading in a tight range just above a 20-month low since May 9. According to market participants a failed attempt at breaking below the key support level of USD0.2000 a pound has held prices up from moving even lower.

Technical traders noted that the sugar market remains in a major bear trend. Prices are down approximately 43% since hitting a three-decade high of USD0.3594 in February of last year.

Sugar prices have been under pressure in recent weeks, losing nearly 23% since March 20, as increasing competition for U.S. exports and ample global supplies have been dominating sentiment.

Elsewhere on the ICE Futures U.S. Exchange, Arabica coffee for July delivery traded at USD1.7715 a pound, easing up 0.05%. Futures held steady in between a range of USD1.7820, the daily high and a session low of USD1.7703.

Prices touched USD1.7232 on May 9, the lowest since August 27, 2010.

Coffee prices have been under pressure in recent months, losing nearly 28% since mid-January as traders eyed a huge harvest in top grower Brazil and speculators pushed prices lower.

Brazil is the world’s largest producer and exporter of Arabica coffee. Arabica is grown mainly in Latin America and brewed by specialty companies.

The coffee market, like the sugar market, is in a major downward trend, with potential for further losses based on historical price charts.

Credit Suisse said in a report last week that it expects coffee prices to average USD1.70 a pound during the next three months, “with the main driver being technicals.”