December has lost 914 points or 9.8% in three sessions. Trade saber rattling “feels more and more like a trade war.” Amendments affecting cotton added to Senate Farm Bill.
Cotton futures closed down nearly the 400-point daily limit in 2018-19 marketing year contracts Tuesday amid apparent ongoing long liquidation.
December settled down 395 points to 83.82 cents, its lowest close since May 18 and just off the low of its 453-point range from 88.30 to 83.77 cents. Old-crop July did close down the limit at 83.32 cents.
Volume surged to an estimated 71,900 lots from 45,822 lots the previous session when spreads accounted for 19,215 lots or 42%, EFS 3,166 lots and EFP 332 lots. Options volume rose to 29,953 lots (21,648 calls and 8,305 puts) from 8,790 lots (2,824 calls and 5,966 puts).
Cotton fell heavily for the third day in a row, with December down 914 points or 9.8% from Thursday’s close, as global stock markets tumbled, U.S. bond yields fell and the U.S. dollar index rose amid an escalating U.S.-China trade conflict.
Some analysts have said the Trump administration’s saber rattling on trade is a negotiating tactic and that a trade war isn’t going to break out, one trader commented, adding, however, that “as new developments keep unfolding, it feels more and more like a trade war.”
Meanwhile, on the policy front, the farm bill passed by the Senate Agriculture Committee includes a provision to reduce the gross income test to $700,000 from $900,000 and two amendments to eliminate the Economic Adjustment Program for domestic textile mills and cotton storage credits.
An amendment by Sen. Amy Klobuchar, D-Minn., to restore mandatory funding for various renewable energy programs and funding for the Margin Protection Program for dairy producers would eliminate the EAAP as the budget offset to pay for the changes.
Another amendment by Sen. Michael Bennet, D-Colo., would add funding to biomass programs and eliminate cotton storage credits as the budget offset to pay for the change.
Both amendments passed on a voice vote. Sen. John Bozeman, R-Ark., argued against the renewable energy-dairy amendment and said the EAAP is important for the entire cotton industry.
Committee Chairman Pat Roberts, R-Kan., committed to address those issues and attempt to find different budget offsets as the bill moves to the full Senate. He said his goal is a farm bill that works for all commodities and all regions by maintaining a balanced policy.
The National Cotton Council, in coordination with the National Council of Textile Organization, is working to restore funding for EAAP and cotton storage credits. The council prior to committee consideration of the bill had urged support for cotton priorities, including seed cotton in the ARC/PLC programs, which is in the bill.
After the House and Senate pass their versions, the final farm bill will be negotiated by a joint conference committee. The House bill maintains cotton storage credits and includes an increase in the EAAP payment rate to $0.0315 per pound from $0.03 a pound.
Certified stocks increased 215 bales to 82,314 on Monday, the ICE daily report showed. Awaiting review were 2,200 bales at Dallas-Fort Worth. Open interest declined 6,770 lots to 284,313, with July’s down 6,265 lots to 15,695 and December’s down 1,420 lots to 195,814.
