JULY 17, 2020

MOMENTUM FALTERED IN COTTON FUTURES MARKET THIS WEEK

• U.S. Retail Sales Up 7.5% Month-Over-Month in June
• Export Sales Report Showed Low Sales This Week
• Crop Conditions Deteriorate in Southwest

Cotton futures settled at 64.31 cents per pound last Friday after the bullish WASDE report, which was nearly the highest settlement since February. Unfortunately, that momentum faltered this week, with futures slowly declining to a low of 61.68 cents on Thursday morning. Prices did recover from the low before the close, and December futures settled at 62.54 cents, down 135 points since last Thursday. Average daily volumes declined to recent lows, but open interest gained 3,310 to 174,187 contracts.

OUTSIDE MARKETS

U.S. stocks got a shot in the arm from promising advances in the development of coronavirus vaccines. Major indexes surged toward their early June highs. There were also bright spots in the economic picture this week. U.S. retail sales were up 7.5% month-over-month in June, and clothing store sales continued to recover. Clothing store sales doubled from May, but were still more than 20% behind June 2019. Jobless claims were still rather depressing. 1.3 million people filed jobless claims last week and 17.4 million people still have continuing claims. Continuing claims decreased more than expected, but the surging coronavirus cases and the patchwork of reinforced lockdown measures still have many investors nervous. Although stocks rallied, money also continued to flow into the safe haven of U.S. treasuries. The 10-year note touched its lowest yield in two months.

EXPORT SALES

In the week ending July 16, cotton exporters made net sales reductions of 17,500 bales for 2019/20 and net new sales of 29,100 bales for 2020/21. The large reduction was mainly driven by 40,800 bales of cancellation from China. On the bright side, shipments were still very strong at 311,700 bales. Vietnam was the largest buyer at 20,500 bales, followed by Pakistan with 6,400. Although sales this week were very low, total outstanding sales for both this marketing year and the next remain very high.

CROP PROGRESS AND WEATHER

Crop conditions deteriorated in the Southwest, as the share of the crop rated “poor” and “very poor” increased in Oklahoma, Kansas, and Texas. After this week’s heat wave, it is likely we’ll see even worse figures next week. There isn’t much indication that the pattern of high temperatures and little rainfall will break in the next several days, although there have been some spotty showers on the plains and some meaningful precipitation in the northwest corner of Texas, the Oklahoma panhandle, and Kansas over the past few days. The outlook is more positive for South Texas, which may get more rain later in the week.

THE WEEK AHEAD

The Southwest crop is still desperate for moisture, which will have traders checking the forecast every other hour in the week ahead. Aside from the weather, export sales will remain a key focal point. Beyond those points, cotton market information will be slow this week. Price shocks, if they come at all, are more than likely to come from the broader markets.

IN THE WEEK AHEAD:

• Friday at 2:30 p.m. Central – Commitments of Traders
• Monday at 3:00 p.m.  Central – Crop Progress Report
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton-On-Call