Paragon Investments' Futures File: Cotton & Pound Higher

Cotton is Rockin

A confluence of factors helped the white fiber sail higher all week as speculators caught onto both better demand and lower supplies.

Forward progress on a U.S.-China trade deal is boosting hopes that China, the worlds biggest consumer of cotton, will return to buying U.S. exports. Over 80% of all U.S. cotton is sold to foreign countries, and China was often one of Americas top customers.

A tumble in the value of the U.S. dollar this week added fuel to the cotton rally, as a weak dollar makes our cotton cheaper for foreign buyers.

In the meantime, the cotton crop in Texas, the United States largest cotton producer, is threatened by ongoing drought conditions. This years cotton crop was planted late due to wet spring conditions, which were then followed up by a hot, dry summer that stressed much of the crop across the South.

Despite the tough weather, this years cotton crop could be the largest in over a decade. Farmers increased cotton acreage significantly this year, choosing to plant cotton instead of soybeans or corn due to field conditions and better profitability for cotton this year.

As of midday Friday, cotton for delivery in December was worth 65 cents per pound, near the highest price in over three months.

British Pound Steadfast

The British pound continued rallying higher this week after British and European Union negotiators struck a deal for an orderly exit from the E.U. The new deal decreases the chance of a messy breakup and gave investors confidence that the British economy should hold together, pushing the pound to a five-month high over $1.30.

The proposal now goes to Great Britains Parliament, which is holding an unprecedented Saturday session to vote on the deal. Following three years of negotiations, the politicians can choose to accept the deal, attempt to renegotiate, or refuse the deal and leave the E.U. without a plan.

If they take the deal, the British pound and stock markets could rally sharply, but if they choose the path of hard Brexit or attempt to cut a new deal, that could send the pound spiraling lower. As a result, investors worldwide will be watching Saturdays spectacle, which is expected to be a raucous affair.