WEEK STARTS SLOW, THEN EXPORT REPORT SPARKS SELL OFF

• Prices Fall to Lowest Since Early April
• Traders Looking at Effects of Recent Weather
• Effects of Higher Interest Rates
• Strong Dollar Weighs on Export Sales

Futures prices were flat for the first half of the week with little volume or change in the open interest. Nevertheless, Thursday’s Export Sales report was disappointing, which sparked a sell off in the hours after its release. Unfortunately, prices continued to decline Friday, hitting their lowest level since early April at 76.27 cents per pound just before the session’s close. Daily trading volumes increased significantly as prices fell Thursday and Friday but were still relatively low. Open interest lost 3,663 contracts week-over-week, leaving 247,226 open contracts, the lowest level since Dec. 1 of last year.

EFFECTS OF RAIN ON U.S. CROP

U.S. crop prospects remain uncertain. Traders are still forming quantity and quality loss estimates in the Carolinas, and heavy rains in the Delta have at least dented optimism about the quality of the Mid-South Crop. The Central and South Texas crops also have received unwanted showers, and it looks as though Hurricane Rosa (or its remnants) may rain on portions of the Far West crop, too. Rains in West Texas and Oklahoma this week were not helpful, but most of the remaining cotton was not open enough to be badly affected. If the poor harvest weather continues, high-grade cotton likely will be a little scarcer than most expected this season.

FED RAISES KEY INTEREST RATE

Before addressing demand, it is important to note the macroeconomic factors influencing the market. Several pieces of positive economic data preceded the Federal Reserve’s decision to increase its key interest rate another quarter-point. Higher interest rates in the U.S. have kept the value of the dollar high, which continues to give an advantage to foreign exporters. A down week for the stock market also has shaken investors’ confidence in risky assets (including commodities), encouraging speculative buyers either to exit or to stay away.

BUYERS FOCUS ON CHEAPER FOREIGN GROWTHS

As U.S. exporters struggle with a stronger dollar, cotton sales also have slowed. This week’s Export Sales report showed just 70,300 bales of net new sales for 2018-19. China cancelled 50,200 bales for 2018-19 and rebooked 56,400 for 2019-20. Vietnam accounted for nearly half of this week’s net new sales at 34,700 bales of new orders. However, this does not necessarily mean that demand is gone. Mill buyers seem to have been taking advantage of cheaper foreign offers in healthy volumes, which implies that consumption is still healthy. U.S. export sales will revive when cheap foreign supplies dwindle or foreign exchange markets reverse direction, whichever comes first.

WATCHING CLASSING AND WEATHER REPORTS

In the week ahead, traders will focus on daily classing reports for early indications of crop quality and weather reports to gauge the quality risk that remains on open cotton. West Texas cotton is roughly half open, and dry, sunny weather would be helpful. Attention also will begin shifting to revising crop estimates with the October WASDE report just a few weeks away. Of course, traders also will be closely watching Thursday’s Export Sales report for whether this week’s lower prices were able to generate any fresh demand.

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.