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-SOFT COMMODITY TRADING
-Episode 15 · Friday 4 September 2026 · 13 min 35
-Cotton, Rice and Juice
-A cotton mill that has taken delivery but not set a price is short the board
-without owning a single contract, and the CFTC publishes exactly how much of
-that unfixed buying is still to come.
-Listen:      https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep15.mp3
-Read online: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep15.html
-MARKET PULSE
-============
-Cotton gave back two and a half cents, and it was the biggest move on the
-board.
-Market         Contract  Settle         Change
-----------------------------------------------
-Cotton No. 2   Dec 26    86.45 ¢/lb   −248 pts
-Chicago wheat  Dec 26    754¼ ¢/bu       −19¾¢
-Soybean oil    Oct 26    69.63 ¢/lb   −101 pts
-Corn           Dec 26    540¾ ¢/bu        −2¾¢
-Rough rice     Nov 26    $15.70 /cwt      −2½¢
-Soybeans       Nov 26    1316¼ ¢/bu        +6¢
-Soybean meal   Oct 26    $348.60 /st    +$5.70
-Thursday was a soft session with one sharp exception. December cotton
-settled at 86.45, down 248 points — a point being one hundredth of a cent,
-so two and a half cents came off the board in a day. Chicago wheat lost
-nearly twenty cents, or 2.6 percent. Beans and meal were the only things
-higher.
-Cotton had climbed through August. Late in the month the December contract
-printed a fresh contract high near 89.45, on a US crop rated 38 percent good
-against 55 percent a year earlier, and on world ending stocks forecast at
-the lowest since 2011/12. Thursday's break undid roughly a third of that.
-The policy read. China's state reserve has been auctioning cotton into its
-own mills, and the auctions have cleared in full for 24 consecutive sessions
-— about 192,497 tonnes placed by 21 August. A reserve auction that sells out
-every day is not a price cap. It is a government discovering that domestic
-supply is short, and a domestic bid that eventually has to be met from
-outside. That is the transmission: reserve draw first, import demand second,
-world price third.
-[chart] Thursday's moves — Cotton and wheat carried the session. Everything
-        else was noise around them, and only the bean complex held. — CBOT
-        and ICE settlements, Thursday 3 September 2026 —
-        https://storage.googleapis.com/podcast-audio-2647223968/commodity-
-        desk-daily/ep15_chart1.png
-  * An unfixed on-call sale is a buy order that has not been placed yet, and
-    it carries a deadline. Read the report by futures month, not by total:
-    the total gives the mood, the months give the trade.
-  * Mills fix into weakness, growers fix into strength. Whoever is closer to
-    first notice day is the one who has to move.
-  * A big net on-call number is a spread signal, not a flat price signal. In
-    late August the pressure sat in March and July 2027, while December 2026
-    carried net latent selling.
-  * Notional is not size. A rice lot and a corn lot are worth about the same
-    money and are not remotely the same position.
-  * In a thin market, size is measured in days to liquidate, not dollars.
-  * Rice is thin because policy is its supply curve. Juice is thin because
-    its supply is biology, and the trees are not coming back.
-Term                   Meaning
-----------------------------------------------------------------------------
-Cotton No. 2 (CT)      The ICE cotton contract: 50,000 lb net weight, quoted
-                       in US cents per pound. One cent is $500 a lot, one
-                       point is $5
-bale                   The unit every cotton statistic uses: 480 lb net in
-                       the United States, so one CT lot is about 104 bales
-on-call sale           Cotton sold by a merchant to a mill at an agreed
-                       differential, with the futures leg left for the buyer
-                       to fix later
-on-call purchase       Cotton bought by a merchant from a grower, with the
-                       futures leg left for the seller to fix later
-unfixed                A price-to-be-fixed contract whose futures leg has
-                       not been set, so the exposure is still outright
-cotton on-call report  The weekly CFTC table of unfixed sales and purchases
-                       by futures month — a map of forced order flow
-first notice day       The first date a short may tender delivery, and the
-                       practical deadline for fixing or rolling an unfixed
-                       position
-rough rice contract    The CBOT rice future: 2,000 cwt of long grain rough
-                       rice, quoted in dollars per hundredweight
-FCOJ-A                 The ICE orange juice contract: 15,000 lb of orange
-                       solids, quoted in US cents per pound
-thin market            A market where the price you get depends materially
-                       on the size you want, whatever a single lot is worth
-market depth           The quantity resting near the touch — what actually
-                       sets execution cost, as opposed to headline volume
-days to liquidate      Position divided by honest daily volume: the sizing
-                       measure that replaces a notional limit in a thin
-                       market
-state reserve auction  A government selling from its own stockpile into its
-                       domestic market, whose clearing rate reads as a
-                       tightness signal
-citrus greening        Huanglongbing, the bacterial disease that permanently
-                       cuts an infected orange tree's yield and cannot be
-                       cured
-CONVERSION DRILL 3 OF 12 — BUSHELS ↔ TONNES, WHEAT AND SOYBEANS
-===============================================================
-Rule: 1 tonne ≈ 36.7 bushels (a bushel of wheat or soybeans is 60 lb)
-Fast method: tonnes → bushels: ×37 is close enough, and ×37 = ×40 minus ×3.
-Bushels → tonnes: ÷37, i.e. ÷40 then add 8%.
-  * 60,000 t → 2,400,000 − 180,000 = 2.22 million bu
-  * 25,000 t → 1,000,000 − 75,000 = 925,000 bu (exact 918,000)
-  * 500,000 bu → 12,500 + 1,000 ≈ 13,600 t (exact 13,608)
-Why it matters: the corn factor and the wheat/soybean factor differ by 7%.
-Using the wrong one on a cargo is a six-figure error.
-QUIZ
-====
-Q1. A spinning mill has bought 620 lots of cotton on call against March
-2027, at March plus 780 points. March futures were at 89.93 the day the
-contract was agreed. The mill takes the view that the market has run too
-far, waits, and ends up fixing the whole position at 93.40 shortly before
-first notice day.
-  * What is the mill's final delivered cost in cents per pound, and what is
-    the total invoice in dollars?
-  * What did the decision to wait cost, against fixing on the day the
-    contract was agreed?
-  * The treasurer says: "we should simply have bought 620 March futures on
-    day one." Would that have removed the exposure — and what would the mill
-    have been left holding at fixation?
-Q2. The CFTC on-call report of 21 August 2026 showed December 2026 carrying
-30,866 lots of unfixed sales against 32,711 lots of unfixed purchases. What
-does that month's balance imply about order flow still to come in December
-futures?
-Q3. Brazilian hydrous ethanol parity sat at 12.60 c/lb while the No. 11
-screen was at 17.56. A fund manager argues that a further rally in raw sugar
-will pull more Brazilian sugar out of the mills. Why is that wrong?
-Q4. September arabica settled 36.10 cents over December on the first day of
-the spot contract's delivery notice period. What does an inverse that steep
-say about the position of the front-month shorts?
-Q5. Conversion drill. A Panamax of 44,000 t of soybeans is sold. How many
-bushels is that, and how many Chicago lots would hedge it?
-============================================================================
-                       SOLUTIONS BELOW — ANSWER FIRST
-============================================================================
-SOLUTIONS
-=========
-A1. Work it in three steps, and keep the differential separate from the
-board throughout — that separation is the whole point of an on-call
-contract.
-Size. 620 lots × 50,000 lb = 31,000,000 lb, which at 480 lb to the bale is
-about 64,583 bales. Note the tick value that follows from it: one cent on
-620 lots is 620 × $500 = $310,000.
-The delivered cost. The differential was agreed and never changes. Only the
-board moves.
-                             ¢/lb
----------------------------------
-March futures at fixation   93.40
-Differential                +7.80
-Delivered cost             101.20
-Invoice: 31,000,000 lb × $1.0120 = $31,372,000.
-The cost of waiting. Fixing on day one at 89.93 would have given 89.93 +
-7.80 = 97.73 ¢/lb, and an invoice of 31,000,000 × $0.9773 = $30,296,300. The
-wait cost $1,075,700 — which is simply the 3.47¢ rally times the
-$310,000-a-cent tick value. Per lot, $1,735.
-The treasurer. Yes, buying 620 March futures at 89.93 on day one would have
-removed the exposure exactly. That long would have gained 3.47¢ × 620 × $500
-= $1,075,700, precisely offsetting the higher fixation. At fixation the mill
-sells the futures out and is left holding cotton at an effective delivered
-cost of 97.73 ¢/lb.
-The trap the question is testing: the mill was never "unhedged and waiting".
-An unfixed on-call purchase is a position — the mill is short the board, one
-for one, from the moment it takes the cotton. Doing nothing was not
-neutrality, it was a 620-lot short held by a company that does not consider
-itself a speculator. And the mill was 620 of the 19,481 lots of unfixed
-March sales in the market, about 3 percent of a queue of buyers all waiting
-for the same dip.
-A2. December carried net latent selling, not buying — 32,711 − 30,866 =
-1,845 lots more unfixed purchases than unfixed sales.
-The direction is the part people get backwards. An unfixed sale is a mill
-that has taken cotton and not priced it: its cost rises with the board, so
-it must eventually buy futures. That is latent buying. An unfixed purchase
-is a merchant who has bought from a grower with the grower holding the right
-to fix: that fixation is a sale. That is latent selling.
-So the December column says that the flow still to come in that contract
-leans, mildly, to the sell side — even though the market-wide total of
-79,167 sales against 67,696 purchases leans to the buy side by 11,471 lots.
-The overhang was real, but it was not in December. It was in March (+12,519)
-and July 2027 (+12,651), with December 2027 running hard the other way
-(−18,583) because that is where growers have sold forward and not yet fixed.
-Reading the total and buying the front month gets the right thesis in the
-wrong contract.
-A3. Because the switch is already spent. Ethanol parity is the level at
-which a mill earns the same per unit of ATR from sugar as from ethanol. At
-17.56 against a parity of 12.60, mills are already about five cents above
-the point where the decision flips, so every mill that can make sugar is
-already making the maximum its crystallisation capacity allows. The mix is
-set at the start of the season by hardware, not by the screen.
-Above parity, a rally therefore buys no extra Brazilian tonnes. It has only
-one remaining job, which is to ration demand. The price sensitivity of
-Brazilian supply lives below parity, not above it: it is a fall towards
-12.60 that changes behaviour, by making ethanol the better home for the
-cane. A trader who models Brazilian supply as a smooth function of the sugar
-price will keep expecting an elasticity that has already been used up.
-A4. It says the front-month shorts cannot deliver. A 36.10-cent inverse is
-the market charging an enormous price for coffee now versus coffee in three
-months, on the first day of the notice period — which is precisely the
-moment a short has to choose between tendering certified coffee and buying
-its position back. When the certified float is small enough (226,242 bags,
-under half a day of world consumption), most shorts do not have the coffee,
-and everyone knows it. The inverse is the price of that fact.
-Two things follow. A carry market pays you to store and an inverse punishes
-you for it, so nobody with coffee is holding it back. And an inverse this
-steep is a statement about deliverable supply, not about world supply — the
-crop can be a record and the front month can still be squeezed, because only
-certified stock settles a contract.
-A5. A tonne of soybeans is 36.744 bushels (60 lb to the bushel).
-44,000 t × 36.744 = 1,616,736 bu
-In your head: ×37 is ×40 minus ×3, so 1,760,000 − 132,000 ≈ 1,628,000 bu —
-close enough to quote.
-At 5,000 bu to a Chicago lot, 1,616,736 bu is 323 lots. The trap is the corn
-factor: using 39.368 would give 1,732,192 bu and 346 lots, and you would be
-over-hedged by 23 lots.
-THE EPISODE, IN WRITING
-=======================
-The contract, and the unit under it
------------------------------------
-ICE Cotton No. 2 is 50,000 lb of net weight, quoted in US cents per pound.
-One cent is $500 a lot. One point — a hundredth of a cent — is $5.
-Underneath it sits the bale, which is what every cotton statistic in the
-world uses: production, stocks, exports, mill use. A US bale is 480 lb net.
-So one futures lot is about 104 bales. The number is not elegant, and there
-is no reason for it beyond history: 480 lb is what a compressed bale weighed
-when the standard was written, and the trade never revisited it. The
-practical consequence is that a cotton desk converts between bales and
-pounds continuously, because the fundamentals arrive in one unit and the
-hedge is denominated in the other.
-On call: the report nobody else gets
-------------------------------------
-A mill does not usually buy cotton at a price. It buys cotton on call: the
-differential is agreed today, the futures leg is fixed later, at a moment
-one side gets to choose. Structurally this is coffee's price-to-be-fixed,
-and the mechanics of fixation are the same.
-What cotton has that coffee does not is a public tally. Every week the CFTC
-publishes how much cotton has been sold on call and not yet fixed, and how
-much has been bought on call and not yet fixed, broken down by futures
-month. No other soft market publishes its unfixed book.
-The direction is where people go wrong, so it is worth stating slowly.
-Position             Who holds it          What fixing requires  Latent flow
-----------------------------------------------------------------------------
-Unfixed on-call      A merchant has sold   The mill's cost       Buying
-sale                 to a mill; the mill   rises with the
-                     fixes                 board, so it must
-                                           buy futures
-Unfixed on-call      A merchant has        The grower's revenue  Selling
-purchase             bought from a         rises with the
-                     grower; the grower    board, so fixing is
-                     fixes                 a sale
-A mill sitting on unfixed purchases is short the board without owning a
-single contract. Its cost moves one for one with December or March, and the
-only way out is to buy — either as a hedge now, or as the act of fixation
-later. Fixation is not an administrative step. It is a purchase.
-Which means every unfixed on-call sale in that table is a buy order that has
-not been placed yet, and unlike a speculator's order it has a deadline
-attached: first notice day.
-Here is what it sounds like in late January:
-  | MILL: What's March showing?
-  | MERCHANT: Ninety twenty.
-  | MILL: I'll wait.
-  | MERCHANT: You've four hundred lots to fix and eleven sessions to first
-  | notice.
-  | MILL: Then I'll wait ten of them.
-Nobody argued about the differential. It was agreed months ago. The entire
-negotiation was about a calendar.
-Why it becomes a squeeze
-------------------------
-Take a mill holding 400 lots on call against March — 20 million pounds,
-roughly 41,700 bales. Every cent the board rises before it fixes costs it
-400 × $500 = $200,000. Three cents is $600,000, on cotton already sitting in
-its own warehouse.
-That is a cost, not a squeeze. The squeeze is what happens when every mill
-reasons the same way at once.
-Each of them waits because it believes the market will come back. So the
-buying does not arrive smoothly across the quarter. It arrives compressed
-into the last sessions before the notice period, from buyers who by then
-have no view left — only a deadline. A rally that began with a dry Texas
-summer ends with people buying because the calendar told them to, and the
-last stretch of it has nothing to do with cotton fundamentals at all.
-The month is the trade
-----------------------
-The 21 August report showed 79,167 lots of unfixed sales against 67,696 of
-unfixed purchases — net about 11,471 lots of latent buying. The obvious
-conclusion is to be long cotton. The obvious conclusion gets the contract
-wrong.
-[chart] Net unfixed on-call, by month — The overhang is not in December. It
-        is in March and July 2027 — and December 2027 leans the other way,
-        because that is where growers have sold forward and not yet priced.
-        — CFTC Cotton On-Call report, week ended 21 August 2026 —
-        https://storage.googleapis.com/podcast-audio-2647223968/commodity-
-        desk-daily/ep15_chart2.png
-December 2026 is net short of buying: 30,866 sales against 32,711 purchases.
-The pressure sits in March 2027 (+12,519 net to buy) and July 2027 (+12,651,
-against almost nothing on the other side). December 2027 runs hard the other
-way, at −18,583, because that is the month growers use to sell a crop
-forward before they are willing to price it.
-So the report is not a flat price signal. It is a spread signal. What it
-argues for is long March against December, not long cotton.
-And there is a layer beneath even that. The purchase side of the table is
-the grower. Growers fix into strength; mills fix into weakness. A rally
-therefore summons mill buying and grower selling simultaneously, and which
-one dominates is a question of who is nearer a deadline — not of who is more
-numerous. That is the read, and it changes week to week as the calendar
-advances.
-Thin is not small
------------------
-Rice and orange juice teach the second lesson, and it starts by killing an
-intuition.
-[chart] One lot, four markets — Within twenty thousand dollars of each other
-        in notional — and orders of magnitude apart in depth. Contract size
-        tells you almost nothing about how hard a position is to leave. —
-        Settlements of 3 September 2026 and exchange contract specifications
-        — https://storage.googleapis.com/podcast-audio-2647223968/commodity-
-        desk-daily/ep15_chart3.png
-A rough rice lot is 2,000 cwt — 200,000 lb — and at $15.70 that is $31,400.
-A December corn lot at 540¾ is $27,038. Wheat is $37,713, cotton $43,225. By
-notional these are the same instrument.
-They are nothing like the same instrument, because thin does not mean small.
-Thin means the price you get depends on how much you want. In corn, 370 lots
-is invisible. In rough rice, 319 lots — almost identical money — is
-somebody's week.
-The practical consequence is that a notional risk limit is the wrong control
-in a thin market. The right measure is days to liquidate: take the position,
-divide by honest daily volume, and ask how many sessions it takes to get out
-without being the market yourself. If the answer is more than two or three,
-the desk does not have a position. It has a commitment.
-Two different kinds of thin
----------------------------
-Rice and juice arrive at thinness from opposite directions, and the
-distinction matters because it tells you what kind of shock to expect.
-Rice is thin because most of it never moves. It is grown and eaten in the
-same countries; only around a tenth of world production crosses a border at
-all. And that traded tenth is dominated by governments — export duties,
-minimum export prices, licence regimes. One notification out of Delhi resets
-the world price faster than any monsoon.
-When policy is the supply curve, information does not accumulate. There is
-nothing, and then there is everything. That is why in rice the futures
-matter less than the announcements, and why a position that looked liquid on
-Friday can be untradeable on Monday morning.
-Juice is thin for the opposite reason. Its supply constraint is not policy
-but biology, and it is one-directional. Citrus greening has been working
-through São Paulo for two decades; around 40 percent of a recent Brazilian
-crop was affected. A tree that has it does not recover. So this is not a
-weather premium that builds ahead of a window and decays on the calendar —
-it is a slow, permanent reduction in the number of producing trees. FCOJ-A
-on ICE is 15,000 lb of orange solids. A market that small does not absorb a
-fund. It gets moved by one.
-Cotton, then, sits between the two. It is liquid enough to trade properly,
-and it publishes the one thing the thin markets never tell you: exactly how
-much forced buying is still to come, and in which month.
-----------------------------------------------------------------------------
-Soft Commodity Trading — a daily briefing on physical commodity trading.
-GLOSSARY
-Every unit and expression the show has introduced lives on the episode page:
-https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep15.html#glossary
-All episodes: https://storage.googleapis.com/podcast-audio-2647223968/index.html
-RSS: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/feed.xml