Cotton Plunges on Dollar Strength, Lean Hogs Soar on Chinese Demand

Includes: BAL, CORN, COW
by: CommodityHQ

By Eric Dutram

U.S. markets had a rough start to the week as fears over debt loads in Europe sent many investors running for safe havens. Losses were pretty much across the board in American equity markets as financials did the worst while healthcare came out relatively unscathed. Internationally, Asia started Monday on a down note as the Hang Seng and the S&P ASX both finished the day lower by about 1.5% while Europe outdid their Asian counterparts as the French and German indexes both fell by over 2.3% while the Italian benchmark plunged by close to 4% on worries over that country’s debt. As a result of this international turmoil, many investors fled to safe havens such as the U.S. dollar and Treasury bonds, helping to send yields much lower on the day for most maturity levels of American debt. Unsurprisingly, this led to a risk off trade in commodities, putting all four of the major resource indexes lower for the day.

One of the biggest commodity winners on the day was in the lean hogs market as futures rose by 3.3% to open the week on what was overall, a down day for commodities. These gains were largely due to reports from the Chinese government, which suggested that the country would do whatever it could to contain price increases of the staple meat in the country. “Stabilizing pork markets is a responsibility that the government must not shirk,” Wen Jiabao, the Premier of China, said in a statement posted on the central government’s website. China is the world’s largest consumer of pork, and many took the comments by Wen as a suggestion that more imports will be needed in order to get prices under control, leading to today’s large gains in the futures market. The July contract saw a 25 cent increase in prices while the more heavily traded August contract saw its prices rise by the limit, $3.00, to finish the day just over the $99.17 mark.

(Click charts to enlarge)

Charts courtesy of

One of the biggest losers in the commodity world was cotton as futures for this fluffy commodity declined by 4.4% on the day. Monday's losses were largely the result of a rally in the U.S. dollar as America is the largest exporter of the crop. The U.S. dollar index rose by more than a full percent on the day, limiting demand for supplies from America, causing the price to sink in the process. Today’s losses push cotton prices down to a nine month low, a level that is roughly 50% off of their all-time high of just under $2.2/lb in March. Currently, prices stand at roughly $1.11/lb and heavy contango in the next few months could further add to the crop’s woes. (Note that the flat lime for much of the day’s trade means that the contract hit the limit loss, halting trading for the day)

Disclosure: No positions at time of writing

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