Cotton futures soared to a record on speculation that global supplies will fail to keep pace with rising demand in China, the world’s largest user.
Chinese imports surged 86 percent in 2010 as economic growth lifted demand from textile mills and adverse weather hurt the domestic crop. The country’s purchases may increase before next month’s Lunar New Year holidays, said Han Sung Min, a broker at Korea Exchange Bank Futures Co. On Jan. 12, the U.S. government cut its global-production outlook. Prices have more than doubled in the past year.
“Cotton was supported by China’s import data and speculation that the country will buy more” as the holidays approach, Seoul-based Han said.
Wheat fell for the first day in six in Chicago on speculation that a rally to a five-month high will reduce demand from investors. Corn and soybeans also dropped.
Wheat gained 8 percent in the past five sessions on speculation adverse weather in South America, China and the U.S. curbed production. Hedge-fund managers and other large speculators pared their net-long position in Chicago wheat futures by 1 percent in the week ended Jan. 18, according to U.S. Commodity Futures Trading Commission data.
“Everybody is aware of the weather situations going on right now,” said Connor Noonan, an analyst with Castlestone Management in London. “Everybody has priced in the floods in Australia, and now we have flooding in South America. All of that combined, people are taking a little off the table.”
The world faces another year of substantial wheat deficit in 2011-12, amid what is likely to be the "most intense battle for acres in history", Commonwealth Bank of Australia warned.
World wheat production, which is expected to fall 17m tonnes below consumption in the current season, will chalk up a second successive shortfall, reducing inventories to their lowest for four years.
Indeed, it will take until 2012-13 for the world to return to a, modest, surplus in wheat output, CBA said, pitching itself at the gloomier end of the round of forecasters releasing initial estimates for the coming season.
CBA forecast the 2011-12 deficit at 15m tonnes, noting that prospects for winter crops in the US and China had been curtailed by drought, while the likelihood of a rise in further seedings was being curbed by the clamour for nearly all crops for extra area to rebuild production and depleted supplies.
Notice that all the articles point to supply and demand issues: China increased its cotton imports 86% in a single year. That's a huge increase, and one that is large enough to drain world supplies. The wheat market is also suffering from supply issues. Also note that with increasing living standards, diets change, and hence people typically demand more food. In short, there are plenty of fundamental reasons for the increase in commodity prices, most of which are the result of increasing living standards.