GSX Weekly Commodity Comment - Free Package

Key Takeaways:

U.S. cotton flat price continues to be moving around based on the weather forecast. Conditions came in lower this week at 38% E/G compared to prior week at 40%. Subsoil moisture and top soil is also trending down compared to the 5 year median and this is likely to get the bulls excited. What must be said is as per the calendar below, the window for which weather matters to this market is closing.

Given that the recent WASDE reported an increase in cotton acreage, albeit lower yields and the fact that we have had poor weather for the most part of this year, just on a statistical basis.

Septembers WASDE would be the last meaningful opportunity to have any revisions downwards. The weather continues to deteriorate, market has priced in the current estimates of the recent WASDA - what new can happen to rally the market for the bulls. Time is not on the bulls side, especially as the next WASDE will be released on Sept 11th. This is just before harvest commences in the U.S., which is when yields will be realised.

Is it easier to be a bull or is it easier to be a bear given all of the above?

“Super El Nino”, “Godzilla El Nino”, these media people like a headline. The U.S. Climate Prediction Centre upgraded its El Nino forecast last week, they stated that there is a greater than 90% chance of a “very strong event” during the northern hemisphere fall and winter 2026/27.

What is very hard to gauge is how the “El Nino” will actually be practically realized? It is primarily talking about a state, a regime if you like, it doesn’t tell us what will be realised in reality. The confidence intervals of an El Nino, even a “Godzilla Terminator Skynet El Nino”, do not necessarily imply what will be the after effect. For all we know, it could be just ‘normal’ El Nino, similar in strength as the previous records in 1982, 1998, 2015, and 2023. Charts floating around portraying the severity and possibility of the ‘worst on record’, however it will only be realised when it arrives.

What one really needs to do is look at such data with skeptical eyes, look at what are the confidence intervals of these models in terms of realised effects? How much accountability do these forecasters take when we actually get to 2026/27? Do they care?

The “Terminator El Nino” which is supposedly the worst on record for the last 75 years, is a theme that is getting the market excited. At the moment Arabica appears to be in the middle of a squeeze, certs are at 231k bags, U/Z is at 31 c/lb up 11 cents over the last three trading days and relative to the last 25 years of history this spread is at a record. U25/Z25 at FND was 10 c/lb. FND is the 21st of September and there is plenty of time for interesting things to happen perhaps there is a strong, beautiful and powerful vessel resting in Bermuda before heading to the board in New York just in time for a Whiskey at Sherry-Netherland….

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US second-quarter growth slowed to 1.5% annualised, July payrolls fell by 23,000 and retail sales declined 0.6% m/m, although headline inflation remained elevated at 3.4% y/y, largely reflecting higher energy costs caused by the continued “phony war” in the Strait of Hormuz.

July core PCE will be the next report released on the 23rd of August.

The print for July is likely to be higher taking into consideration the rally in crude and products, which will likely put more pressure on the FED to raise rates.

Considering the rapidly rising Federal debt which just surpassed 40 Trillion and Bessent continuing the policy he criticised of issuing Bills to fund the budget and a phony war going on in the middle east, there appears to be bond “vigilantes” who might just make Trump blink. They certainly had an effect during “Liberation day”.

Trump’s “positive thinking” mantra isn’t stopping missiles firing. Unlike his first term, he’s not facing another election - his focus now is legacy. His name and face on currency, buildings, passports, the “ballroom”. Giving how much he hates ridicule, the only exit from the Iran war is to reframe it, possibly borrowing Nixon’s “Peace with Honour”. But Trump has no Kissinger, just intellectual lightweights whose commentary feels like being flogged with lettuce.

The bond market will likely be what breaks the market and ultimately the administrations will.