Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Corn Is Surging While Cotton Steals the Show
Transcript
- Lucas: So corn is up nearly 7 percent in the last five days, and cotton has surged 8 percent. But if you look at the broader commodity complex, silver is down more than 7 percent, crude is off 5 percent. The question is: are we seeing a real rotation into grains and fibers, or is this just noise? Luna: It feels like more than noise when you zoom in. Corn at 444 — that's a level we haven't touched in months. And cotton at 79 cents is actually flirting with multi-year highs. Lucas: Right. So let's start with corn, because the move is a little surprising on its face. We had a pretty big U.S. crop planted this spring. The USDA's acreage estimates were above expectations. But the market is looking past supply and focusing on demand — specifically ethanol. Luna: Ethanol demand has been a steady support all year. But what changed in the last week to spark that 7 percent jump? Lucas: A couple of things. First, Brazil's safrinha corn crop — that's the second crop they plant after soybeans — is coming in smaller than expected. Dry weather in Mato Grosso during the critical filling period trimmed yields. That reduces global exportable supplies. Second, the EPA just signaled it's maintaining blending mandates for 2027 at current levels, which gives ethanol investors some certainty. Luna: So the market is pricing in tighter global stocks, even with a big U.S. crop. That's the classic 'stocks to use ratio' story. Lucas: Exactly. And the stocks to use ratio for corn globally is projected to drop below 22 percent this season, which is the tightest in three years. That's the kind of number that gets fund managers rotating out of precious metals and into grains. Luna: Which brings us to cotton. Up 8 percent in five days, and it's been on a tear for weeks. What's driving that? Lucas: Cotton is a classic demand-side story. Global textile demand is finally recovering after two years of destocking. Retailers in the U.S. and Europe are rebuilding inventories. And China's cotton imports are picking up — they bought heavily in May, which caught the market off guard. Luna: I saw that China's May cotton imports were up something like 40 percent year-over-year. That's a huge swing. Lucas: It is. And it's not just China. Bangladesh and Vietnam — the big apparel exporters — are also running their mills at higher capacity. The International Cotton Advisory Committee is projecting global consumption to grow 3 percent this season, which would be the fastest growth in five years. Luna: So you've got demand recovery on one side, but what about supply? U.S. cotton acreage is actually down this year because farmers planted more corn and soybeans. Lucas: That's the other half of the equation. U.S. cotton acreage dropped about 5 percent this year. And the crop in Texas — which is the biggest producing state — is off to a slow start because of dry conditions in the High Plains. So you have a demand surge meeting a supply that's actually shrinking. That's a textbook recipe for a rally. Luna: Meanwhile, silver is getting crushed. Down 7.4 percent in five days. That's a big move for a metal that was supposed to benefit from both industrial demand and precious metals safe-haven flows. Lucas: Silver is caught between two narratives. On the industrial side, it's used in solar panels and electronics, so it should benefit from the energy transition. But the macro headwinds are strong right now. The dollar has been firm, and real rates are still relatively high. And silver is also very sensitive to speculative positioning — when the momentum traders pull out, it can fall hard. Luna: There's also the Kevin Warsh factor. He's the new Fed chair, and markets are still trying to figure out his playbook. If he's seen as more hawkish than Powell, that's a headwind for all commodities, but especially the ones that don't have their own strong demand story. Lucas: Yeah, Warsh's first few weeks have been interesting. He's signaling a more rules-based approach to monetary policy, which markets initially read as hawkish. But he's also pushed back on the idea of rate hikes — he calls it 'regime change in a velvet glove.' So the net effect is still unclear. Luna: That uncertainty might explain why crude oil is falling despite actual supply risks. You've got Iran tensions, Trump threatening fresh strikes, and yet oil is down 5 percent on the week. Lucas: The oil market is looking past geopolitics and focusing on demand. Global economic data has been softer — PMIs in Europe and China are sluggish. And there's growing concern that the U.S. economy might slow in the second half. The EIA reported a surprise build in crude inventories last week, which reinforced that demand narrative. Plus, OPEC+ is talking about unwinding some production cuts later this year. Luna: So the market isn't buying the supply risk premium. They're saying 'show me the barrels being disrupted,' and so far they haven't been. Lucas: Right. And that's the key difference between oil and something like cotton. Cotton has a clear, measurable demand recovery. Oil has a lot of noise and uncertainty. The same macro environment is hitting different commodities in opposite ways, depending on their own supply-demand fundamentals. Luna: Which is exactly why it's worth paying attention to these divergences. If you can understand why corn and cotton are rallying while silver and crude are falling, you're actually learning something about where the economy is heading. Lucas: It's been a wild start to the summer. But honestly, episodes like this — where you get real divergence — are the most educational for understanding how commodity markets actually work. Luna: You know, if walking through the economy with us has made something click, there's a simple way to help keep this show ad-free and independent. It's at buy me a coffee dot com slash fexingo. No pressure, no perks — just a way to support the journalism you value. Lucas: And we really appreciate those who do. It keeps us free to follow these stories wherever they lead, without worrying about ad revenue. Luna: So back to the cotton rally — do you think it has legs into the second half, or is this just a summer spike? Lucas: I think it has legs, but it's not a straight line. The biggest risk is if the global economy slows more sharply. Cotton is a cyclical commodity — if consumers stop buying clothes, the mills will cut orders. Luna: But right now, the data says consumers are still spending. Retail sales in the U.S. were decent in May, and apparel was one of the stronger categories. Lucas: Yes, and that's why the market is bullish. But you have to watch the price level. At 79 cents, U.S. cotton becomes competitive again with synthetics, which could cap demand. And the synthetic alternative — polyester — is derived from oil, which is getting cheaper. Luna: So there's a built-in ceiling if oil stays weak. That's the kind of cross-commodity dynamic that a lot of people miss. Lucas: Exactly. And that's why I keep coming back to corn. Corn has a more durable demand base because of ethanol mandates and livestock feed. Even if the economy slows, people still need to eat. And ethanol blending is required by law. Luna: Plus Brazil's safrinha disappointment isn't going away. That's a supply shock that will take months to fully price in. Lucas: Right. And the next USDA supply-demand report on July 11 is going to be a big one. The market will be watching for any adjustments to U.S. yield estimates. If we see a small cut, corn could easily test 470. Luna: And if yields hold up, we might see a pullback. But the Brazil story gives a floor. Lucas: That's the framework. Meanwhile, cotton needs to watch the weather in Texas and the pace of Chinese buying. If both cooperate, 85 cents is in play. Luna: And silver? Any hope for the bulls? Lucas: Short term, not really. Silver needs a weaker dollar and lower real rates to rally. Neither is happening right now. But if the Fed signals a pivot later this year, silver could snap back fast. It's a volatile metal. Luna: Alright, so the takeaway: corn and cotton have real fundamentals behind them. Silver and crude are fighting macro headwinds. And the divergence itself tells us that commodity markets are functioning — they're not just all driven by the same macro factor. Lucas: Which is exactly the kind of market that rewards homework. Know your supply chains, know your demand drivers, and you can find opportunities even in a sell-off. Luna: We'll keep tracking it. Next week, we're looking at what's happening with natural gas — it's been bucking the trend — and whether that rally has any staying power. Lucas: Sounds like a plan. For now, that's all from The Commodities Economy. We'll see you next time.