Uncertainty leads to volatility in agricultural markets


Uncertainty leads to volatility in agricultural markets, and that has been the case in the cotton market over the past two weeks with both limit up and limit down moves.

Cotton market analyst O.A. Cleveland, professor emeritus at Mississippi State University, told the Texas Farm Bureau Radio Network one reason for the big moves in the market lies with the textile mills on-call sales.

“We have record on-call sales, which means that textile mills have bought physical cotton throughout the year, and they have delayed the fixing of the price,” Cleveland said. “They can only delay it until July, the end of the season.”

The mills gambled that prices will eventually come down, but that hasn’t happened. Now, they are in a tight spot with little time left to fix the price by buying futures.

“There are some 6.4 million bales of cotton that the price has to be fixed on by June 24t,” Cleveland said. “A tremendous amount of buying futures is happening by the mills. They got caught, and they are going to have to pay up until the merchants decide they don’t have to pay any more.”

This type of activity in the market attracts a lot of speculators, trying to make a quick buck at the expense of the mills. As speculators enter the market, the price swings become even larger, and that’s a reason for the limit moves in cotton over the past two weeks.

Cleveland predicted the July contract could top $1.50 per pound on the July contract and $1.25 on the December. Both of those levels were achieved this past week before the market sold off.

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