Cong Cotton Is Not Concerned About Soaring Food Prices.

New York cotton rose slightly this week, and the December contract rose 107 points to 70.58 cents.

Since mid June, the United States has been wrapped up in the longest heat wave. This is the main event this week.

Although the weather did not seem to affect cotton, grain and soybean prices continued to explode, rising at a historic high.

Corn futures closed at $7.73 / bushels in July, which is not far from the $7.99 / bushel hit last year.

Corn futures in recent months have risen $2.22 / bushels since they fell to $5.51 / bushel in June 1st.

The new crop is similar to corn futures. In December, corn jumped from the $5.06 / bushel trough in June 15th to 7.08 dollars / bushel.

The price of soybeans surged, and the July contract closed for 16.26 dollars / bushel in recent months, which is only about 2% different from the historical high of 2008.

In November, the soybean contract closed at $15.26 / bushels, which was $1.23 or bushel or 8% higher than last Thursday.

The price difference between soybeans and cotton is now near the highest level in history. In recent months, the price difference between futures contracts is 22 to 1, and the proportion of new crop futures is 21 to 1.

As the price of the third major food crops and wheat has soared to about $8.40 / bushels, we may see that food prices are unprecedentedly inflating in the coming months.

The rise of grain prices is rooted in the unprecedented heat wave in the United States, which has affected grain production.

Take corn as an example. This year's big crop has an area of 96 million 400 thousand acres. Compared with the 166 bushels predicted by the USDA, the yield per unit area is expected to decrease by 15 bushels / acre to 151 bushels.

If the weather does not rain in the near future and the weather does not turn cool, these forecast figures may be even lower.

The soybean has a month to enter the critical pod period, but the recent three digit temperature seems to have caused some damage to the soybean.

Why is the current heat wave unusual? Because it appeared so early in the summer, so all temperature records were set.

Only last week, more than 200 American heat wave records were caught up or broken.

Usually, the ratio between the new highest record and the lowest record is about one to one, some areas are hot, while others are cooler, but in the past two weeks, the ratio is 10 to 1, and the high temperature area is more than the cool area.

In addition to the Northwest Pacific region, almost all parts of the country are suffering from sultry weather.

The most serious consequence of this historical high temperature and lack of rain is high evaporation rate.

Nearly two years after the La Nina phenomenon (end of April), 56% of the United States had drought or drought. The temperature in the United States was high in spring, and the water evaporated quickly. The water in the second quarter decreased.

At the end of June, no less than 72% of drought in the United States, or drought conditions, may continue to increase.

at present

It seems that the price of grain and soybeans is not concerned. On the contrary, the cotton market is mainly showing weakness (huge end stocks, defaults, and economic difficulties).

Even if there is such a huge price gap between cotton and soybeans / corn, this situation may change once the planting decision is made.

According to the current price difference between cotton and its competing crops, we expect that the cotton planting area will be greatly reduced.

Brazil may be the first major cotton producing country to respond to this huge spread.

When the area is reduced by 30-40%, we will not be surprised.

Other cotton producing countries will follow suit in Brazil next spring, including the Delta and southeastern parts of the United States.

Even without major weather problems, this grain area trend will continue for several years, as it is becoming increasingly difficult to meet the growing demand of the growing middle class worldwide.

In this case, the last thing that cotton can happen is that cotton will make itself more attractive than it is now. Otherwise, we will wear polyester garments one day.

Today, the people's Bank of China, the European Central Bank and the Bank of England announced more measures aimed at lifting the sagging economy.

China lowered its one-year lending rate by 31 basis points, the deposit rate cut by 25 basis points, and the European Central Bank lowered its benchmark interest rate by 1/4 to 0.75%, the lowest interest rate since the euro was established in 1999.

The Bank of England kept interest rates unchanged at 0.5% instead of choosing to pump another 50 billion pounds into its economy.

These measures are not surprising, because unfortunately, interest rate cuts and printing money are the only forces that can deflate deflation.

If so, we will see a massive explosion of asset prices, but the government and the central bank will stop it at any cost.

There is no real competition, because the central banks have unlimited power to print money, and they will finally succeed in raising asset prices.

However, the heavy cost of unrestrained banknote printing is currency devaluation and may end the current financial system.

So where do we go from here? Now the cotton market may still be bearish, but the market participants will no longer ignore the more attractive competing crops.

If grain crops maintain the current price level, or even go higher, then

Sooner or later, it will rebound.

The two case may occur, or cotton will continue to be less attractive, and a larger proportion of planting area will be lost next year, which will eventually drive up prices or raise cotton prices and protect their own planting area.

This is only a matter of time. During this period, we may see that the cotton trading range is extended, the supporting position is near 65 cents, and the resistance level is near 75 cents.