Cotton Closes Higher Within Tight Price Range
U.S. dollar index futures jumped to the highest since Aug. 11 after the Fed signaled a possible rate hike at its next meeting. Federal budget deal would cripple crop insurance, Cotton Council says.
Cotton futures settled modestly higher Wednesday, completing an inside-range session within the prior dayΆs trading band.
Spot December gained 23 points to close at 62.67 cents, around the upper third of its tight 70-point range between 62.20 and 62.90 cents. It settled within nine ticks of last weekΆs finish. March closed up 30 points to 62.46 cents.
Federal Reserve officials kept short-term interest rates unchanged near zero, but opened the door more explicitly than they have before to raising rates at a final 2015 meeting in December, Dow Jones Newswires reported late in the cotton session.
They suggested in a statement they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas. They also pointed specifically to the next meeting as a time when they would be assessing whether it was time to raise rates.
U.S. dollar index futures jumped to the highest since Aug. 11 and traded near there on the heels of the announcement.
Volume slipped to an estimated 17,200 lots from 19,347 lots the previous session when spreads accounted for 8,947 lots or 46%, EFP 475 lots and EFS 87 lots. Options volume totaled 3,053 calls and 686 puts.
Traders took note of strong opposition among farm groups and congressional agriculture committee leaders to a federal budget agreement which would result in a $3 billion cut in crop insurance.
The sweeping budget deal would reopen the 2014 farm bill and require USDA to renegotiate the Standard Reinsurance Agreement by the end of 2016. The target rate of return crop insurance companies can receive would be cut to 8.9% from the current 14.5%.
The National Cotton Council called on its members to urge lawmakers to either strike that provision (Section 201) from the budget agreement or oppose the deal altogether if it remains in the bill.
“Simply put, this provision will cripple the private sector delivery system, likely cause massive consolidation within the crop insurance industry, and ultimately hurt farmers by reducing competition and quality of service,” said Gary Adams, NCC president and CEO.
“If this provision becomes law, it is certainly possible that private companies will no longer view offering crop insurance as a viable part of their business, which would lead to the federal government becoming the de facto crop insurance company,” he said.
The 2014 farm bill brought major policy changes to the cotton industry, he noted, citing the elimination of direct payments and cotton lint not being eligible for the new price and revenue safety net programs.
“Cotton producers, more so than any other major row crop, are heavily dependent on crop insurance for their risk management needs,” Adams said.
When Congress passed the 2014 farm act, the Congressional Budget Office estimated the bill would save $23 billion over 10 years.
“The agriculture committees and the agriculture community have stepped up to the plate to offer budget savings, but forcing private insurance companies to renegotiate a contract and taking more funds from agriculture by reducing their target rate of return will have lasting negative impacts,” Adams said in a letter to members of Congress.
Futures open interest rose by 1,691 lots Tuesday to 198,356, with DecemberΆs down 126 lots to 109,936 and MarchΆs up 1,164 lots to 65,096. Cert stocks grew 1,088 bales to 46,674. There were 1,351 newly certified bales, 263 decertified bales and 3,555 bales awaiting review.
