SEPTEMBER 21, 2018

PRICES TUMBLE ON TARIFF NEWS

• Futures Lowest Since April
• Impact of Florence on Cotton Crop
• Export Sales Slow
• What Traders are Watching

Futures prices slumped to their lowest levels since April following Monday’s news that the United States would move forward with additional tariffs on $200 billion of Chinese imports. The U.S. Trade Representative released a press statement on Tuesday indicating that all the items on a list of 5,745 trade items would be assessed a 10 percent tariff starting Sept. 24, which would escalate to 25 percent on Jan. 1, 2019. China immediately responded with its own tariffs on $60 billion dollars of U.S. goods, intensifying the stalemate. Heavy selling dragged futures through recent lows, and December futures touched 77.90 cents per pound Tuesday night before the market was able to stabilize.

IMPACT OF FLORENCE

Hurricane Florence made landfall as a less intense storm than originally forecast. Nevertheless, Florence moved very slowly along the East Coast, bringing rainfall that was more easily measured in feet than inches. The storm caused dozens of deaths and billions of dollars in damage. Expected cotton losses declined somewhat since Florence made landfall further west than originally thought and rained less on northeast North Carolina where there is a greater concentration of cotton acreage. That hardly seems important in the face of such ruin, and our thoughts and prayers are with all those whose lives have been affected by Florence.

SEVERAL FACTORS AFFECT EXPORT SALES

Weekly U.S. export sales are still somewhat slow with 97,800 Upland bales sold in the week ended Sept. 13. Slower sales are not terribly surprising, considering how much cotton has already been sold, U.S.-China trade friction, and Turkey’s economic crisis. Nevertheless, foreign demand is still healthy. Mills are using domestically-available supply and taking advantage of relatively cheap foreign offers from competitors like Brazil and Argentina. Currency depreciations in those countries have aided exporters. Although some demand has been focused elsewhere, it will shift back to U.S. cotton as existing orders are fulfilled, currency markets stabilize, and/or trade tensions with China are resolved.

LOTS TO WATCH

Traders will continue to focus on the U.S. crop in the week ahead. Harvest weather forecasts, Monday’s Crop Condition and Progress report, and daily classing reports will get close attention. On the other side of the balance sheet, traders will continue to gauge demand through the weekly Export Sales report. The market seems to be increasingly numb to trade policy, but vigilance is still necessary.

IN THE WEEK AHEAD:

• Crop Progress and Condition 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 to 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.