The latter two are perhaps not surprising given the market’s nearly 10 cent rise off of November lows. The H/K spread is trading near even, yet many expect an invert to appear in order to attract bales to the board for March delivery (easier due to new exchange rules).
The US balance sheet appears tight going into Q3 as well given robust export sales in Q4 2013 and healthy domestic mill demand. All in all, the season thus far appears to be almost a perfect repeat of the 12/13 season.
2013 was a great year for US equity (S&P +30%) and housing markets (+14%), while a down one for Treasuries (10-year yields up 127bp) and commodities. Within commodities were mixed performances, with the energy complex mostly holding firm and most grain markets seeing losses.
Cotton, of course, gained 13% for the year although it certainly didn’t feel like an up year as bearish talk about Chinese reserves dominated conversation yet again; something that doesn’t look to change in 2014. Going forward, investors expect renewed USD strength and higher yields as the Fed winds down asset purchases and the economy enters full-blown recovery.
At the same time, investment money is coming out of commodities as analysts predict an end to the super-cycle and a return to trading based on individual product fundamentals. This should create bargain buying opportunities in some markets in the coming years, as low prices start to cure low prices.
Banks are largely being forced out of physical trading in the US due to Dodd-Frank, while foreign banks and private trade houses look to fill the void, ensuring continued tough competition in commodity markets.
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