AUGUST 24, 2018

COTTON NEWS SCARCE, FUTURES LACK DIRECTION

• Did Rain Help Southwest Crop?
• Are Export Sales on Target?
• Other Factors Affecting Cotton Prices
• Producers Await USDA Announcement

Cotton futures rallied Monday and Tuesday but gave back their gains in the second half of the week. Trading volumes were lower, and there was very little cotton-specific news to inspire activity. December prices ranged from a high of 84.05 cents per pound Tuesday to a low of 81.13 Thursday. After falling a few thousand contracts last Friday, open interest stabilized around 253,000 contracts.

CONDITIONS IMPROVE LITTLE DESPITE RAIN

Monday’s Crop Progress and Condition report was somewhat disappointing, at least for the Southwest cotton crop. The report noted only minor improvements in Texas and Oklahoma conditions despite the prior week’s rains. Texas cotton’s share of very poor and poor conditions fell just one percentage point to 51 percent, while Oklahoma’s share fell four percentage points to 42 percent. Oklahoma’s crop in the good and excellent categories even declined two points to 21 percent. In contrast, production outside the Southwest seems to be having better luck, with nearly every other state recording gains in the share of their crops rated good or excellent, which seems to confirm the optimistic outlook of USDA’s August Crop Report.

MILLS CONTINUE TO BUY

Demand for U.S. cotton remains better than it needs to be. Traders and analysts have grown accustomed to seeing large weekly sales numbers over the past two seasons, so net new sales of 188,000 bales last week may seem lower than expected. However, the U.S. has pre-sold more cotton than ever to the export market at this point in the marketing year, and mills are still ordering more. Last week’s sales were more than the weekly average needed to hit the USDA target. Additionally, unfixed on-call sales dropped sharply last week, implying that mills fixed prices on a large amount of their purchase obligations. Demand is still good, and recent prices seem to work for mills.

OTHER FACTORS TO WATCH

Forces outside the cotton market continue to have a larger-than-usual impact on prices. The resumption of trade talks between China and the U.S. seemed to spark Monday’s rally, but the imposition of the second round of tariffs on $16 billion more of Chinese imports put a damper on the market. The crisis in Turkey and more volatility in emerging market currencies has added extra worry to the market. The U.S. economy seems to be in the best shape, which is clearing the path to further Federal Reserve interest rate hikes and adding more concern to the market. Unfortunately, there is no end in sight to heightened macroeconomic risk factors.

“TARIFF AID” ANNOUNCEMENT EXPECTED MONDAY

The weather forecast is for warm, dry weather across the Cotton Belt next week. In addition to days suitable for fieldwork, producers can expect details on USDA’s “Tariff Aid” program, which are slated for release Monday. Traders will focus on Monday’s Crop Progress and Condition report and the daily Quality of Cotton Classed reports. As always, the weekly Export Sales report will get dominate attention on Thursday morning. With little in the way of fresh news, the market seems content with the current trading range.

IN THE WEEK AHEAD:

• Crop Progress will be released Monday at 3:00 p.m. Central Time.
• The Export Sales report will be released Thursday at 7:30 a.m. Central Time.
• The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. Central Time.
• The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. Central Time.