DECEMBER 7, 2018 

A VOLATILE WEEK FOR COTTON AND OTHER MARKETS

• Southwest Harvest Accelerates Ahead of Adverse Weather
• Grades Show Improvement, but Not Everywhere
• Export Sales Lower on Cancellations
• Traders Wait for True Signs of Trade Dispute Resolution
• More Volatility Next Week?

What an incredible week for the markets! Following the apparent favorable outcome of President Trump and President Xi’s meeting last weekend, markets burst higher at the open of trading Monday. From there on, markets were extremely volatile. Stocks and commodities traded in like manner, either all up or all down. Macroeconomic sentiment seemed to be the only factor moving the market. March cotton futures joined the rally Monday, jumping to 81.85 cents per pound. Unfortunately, cotton was not immune to the outside markets’ volatility. Futures whipped wildly back and forth over the next few days, trading between 78.60 and 81.30 cents per pound for the rest of the week.

HARVEST PROGRESS AND GRADES IMPROVE

We are thankful harvest in much of the Southwest progressed quickly ahead of the snow and rain at the end of this week. West Texas cotton classing has improved over the past few weeks, and middling cotton has been the predominant grade in both the Lubbock and Lamesa classing offices. Sadly, that is not the case for most of the crop in the Mid-South and Southeast. Nationwide, USDA classed 1.36 million Upland bales this week, and less than 40 percent had a 31, 21, or 11 color. Three quarters of those high grades were classed in Lubbock, Lamesa and Abilene.

EXPORT REPORT CONTAINS MORE CANCELLATIONS

Export sales were fairly low this week, but that is not terribly unusual for the reporting week that contains the Thanksgiving weekend. In the week ending November 29, exporters sold 136,800 bales of Upland cotton but also cancelled 41,900 bales (30,600 of which was China) for net new sales of 94,900 bales. Sales for next marketing year totaled 80,500 bales, including 28,200 for China, 47,500 to Malaysia, and 4,800 to Thailand. Despite relatively low export sales this week, U.S. cotton is still more committed than usual to the export market. In fact, this week’s year-to-date export sales are at 10.23 million bales, just 65,000 lower than at the same time last year.

DETAILS OF TRADE DISPUTE RESOLUTION LACKING

Markets were quiet leading up the Trump-Xi dinner. Now, the possibility of “immediate” agricultural purchases from China has energized traders but has not delivered any additional confidence. Traders are carefully looking out for signs that China’s reserve could buy U.S. cotton or that China could drop its tariffs on U.S. agricultural products. Details are still lacking, and there is some doubt in the market. Traders are waiting to see real purchases before believing commitments will become a reality.

VOLATILITY AND USDA REPORTS WILL CAPTURE ATTENTION

Looking at the week ahead, the only thing that looks predictable is more volatility. As if economic uncertainty and a trade war were not enough, traders also will have to face the December World Agricultural Supply and Demand Estimates (WASDE) on Tuesday. Most analysts expect a modest downward revision to the U.S. crop and U.S. ending stocks. World production also may decrease as several countries have faced production problems this year. China’s cotton consumption is expected to move lower, perhaps in line with last year’s level. Traders also will closely watch the weekly Export Sales report for any sign that China has begun to buy again.

IN THE WEEK AHEAD:

• WASDE report will be released at 11:00 a.m. Central Time on Tuesday.
• The CFTC Cotton On-Call report to be released Thursday at 2:30 p.m. Central Time.
• The Export Sales report will be released Thursday at 7:30 a.m. Central Time.
• The CFTC’s Commitments-of-Traders will be released Friday at 2:30 p.m. Central Time.