A confluence of factors helped cotton sail higher all week as speculators caught on to both better demand and lower supplies of the white fiber.
Forward progress on a U.S.-China trade deal is boosting hopes that China, the world’s biggest consumer of cotton, will return to buying U.S. exports. More than 80% of all U.S. cotton is sold to foreign countries, and China has often been one of America’s top customers.
A tumble in the value of the U.S. dollar in the past week added fuel to the cotton rally, as a weak dollar makes our cotton less expensive for foreign buyers.
In the meantime, the cotton crop in Texas, the United States’ largest cotton producer, is threatened by ongoing drought conditions. This year’s cotton crop was planted late due to wet spring conditions, which were followed by a hot, dry summer that stressed much of the crop across the South.
Despite the tough weather, this year’s cotton crop could be the largest in over a decade. Farmers increased cotton acreage significantly this year, choosing to plant cotton instead of soybeans or corn due to field conditions and better profitability for cotton.
As of midday Friday, cotton for delivery in December was worth 65 cents per pound, near the highest price in over three months.
Pound is steadfast
The British pound continued rallying higher after British and European Union negotiators struck a deal for an orderly exit from the E.U. The new deal decreases the chance of a messy breakup and gave investors confidence the British economy should hold together, pushing the pound to a five-month high at more than $1.30.
The proposal now goes to Great Britain’s Parliament, which set an unprecedented Saturday session to vote on the deal. After three years of negotiations, the politicians can choose to accept the deal, attempt to renegotiate or refuse the deal and leave the E.U. without a plan.
If they take the deal, the British pound and stock markets could rally sharply, but if they choose the path of “hard Brexit” or attempt to cut a new deal, that could send the pound spiraling lower. As a result, investors worldwide will be watching Saturday’s spectacle, which is expected to be a raucous affair.