Hedge funds made a record bearish bet on cotton just before prices extended declines to hit a three-year low.
Futures traded in New York dropped to US$0.626 a pound on Friday, the lowest since June 2016.
Just three days earlier, money managers expanded their net wagers on price declines. It was the third straight week the bearish position reached a fresh record.
The market is suffering from a serious supply overhang. US inventories are projected to reach a 12-year high in the 2019-2020 season.
Meanwhile, US shipments are still facing tariffs from China, the world’s top consumer.
Even big delays for this year’s plantings and the threat of Tropical Storm Barry, which was forecast to dump heavy rain across growing areas in the Mississippi Delta, has not been enough to rescue prices from their doldrums.
“I don’t see why the specs would turn around,” said Peter Egli, a director of risk management at Plexus Cotton Ltd.
There are “a lot of strikes against cotton,” he said.
Cotton is down almost 30 percent in the past 12 months and is among the worst performer in the Bloomberg Commodity Index, which tracks returns for 22 components.
Slower global economic growth has eroded demand.
The US Department of Agriculture on Thursday cut its 2019-2020 projection for world use by 0.8 percent and boosted its outlook for global inventory by 4.1 percent.
In the week that ended on Tuesday, the investors’ net-short position expanded 11 percent to 41,727 futures and options, according to US Commodity Futures Trading Commission data published on Friday.
The holding, which measures the difference between bets on a price increase and wagers on a decline, was the most bearish since the data begin in 2006.
Even as inventories pile up, there is still plenty that can go wrong with this year’s crop and that could quickly undercut the negative sentiment.
Planting delays have stunted normal development. Only 47 percent of US crops had reached the so-called squaring stage, the growth period prior to blooming, as of Sunday last week, department data show.
That is down 10 percentage points from last year and trails the five-year average.
In Texas, the biggest grower, the figure was 11 percentage points behind last season.
BHP’S LONG PLAN
BHP Group, the world’s largest mining company, has said it could build up to 11 more iron ore mines over the next 50 to 100 years in the mineral-rich Pilbara region of northern Australia.
The Melbourne-based miner has signed an agreement with Western Australia’s government to streamline environmental approvals for its long-term iron ore plan.
Approval time frames for new mines could be cut by up to 50 percent.
BHP and rivals are benefiting from a booming iron ore market amid strong Chinese demand and supply disruptions from Brazil to Australia.
Prices have skyrocketed 65 percent this year, hitting the highest level in more than five years. Benchmark spot ore prices last traded at US$119.50, according to Mysteel Global.
‧Gold futures for August delivery on Friday rose 0.8 percent to US$1,417.65 an ounce, up 1.1 percent for the week.
‧Silver futures settled lower on the Comex.
‧Palladium declined on the New York Mercantile Exchange, while platinum gained.