March 11, 2022

• Ukraine and Russia Conflict Continues to Pressure Economies
• WASDE Left Cotton Report Unchanged
• Biggest Cotton Buyers for the Week Include China, Turkey and Pakistan
• West Texas is Still Considered to be in Extreme Drought

Prices fell sharply last Friday, but the decline was followed by more two-sided action Monday through Thursday. May futures settled at 116.86 cents per pound, down 2.94 points for the week. Trading volumes declined in a sign that panic selling was waning. Open interest revealed the extent of the liquidation falling 11,844 contracts to finish at 226,892, which is the lowest level since July of last year.

Outside Markets

The conflict between Ukraine and Russia has continued to pressure economies throughout the world. Energy and grain prices continue to be extremely volatile due to supply concerns. Wheat prices reached record highs early in the week, but began falling back on Tuesday and fell further on Wednesday with the World Agricultural Supply and Demand Estimates (WASDE), which, despite lowering Ukraine and Russia’s Exports, also increased expected global ending stocks 5 million bushels to 653 million. It was noted at the beginning of the WASDE report that the ongoing conflict between the countries increased the uncertainty of the estimates and that it was just an initial assessment of short-term impacts. Meanwhile, the U.S. Dollar Index experienced a strong decline on Wednesday but began to recover ground Thursday. It is difficult to tell how the strong dollar is impacting commodities just yet, but the U.S. Dollar’s strength does align with higher rate expectations on the back of February’s higher inflation number. Food and gas prices helped drive inflation to a four-decade high of 7.9%.

March WASDE

Compared to the scrutiny that grain markets received, the March revisions to cotton were a bit of a yawner. While many were hoping that the report would give a little more insight into the USDA’s thinking on the U.S. crop and U.S. exports, the report in fact left the U.S. balance sheet unchanged. Perhaps the ginnings reports have not shown sufficient information to change the crop and the USDA has decided it is wise to hold back a little while for more information on global shipments. Or, perhaps, there was too much to debate in the grain markets for U.S. cotton to get much discussion. Global figures also had few changes, with the notable exception of India where the beginning stocks estimate fell 1.5 million bales and production was revised 500,000 bales lower. Alongside some other minor adjustments, global ending stock expectations fell 1.74 million bales to 82.57.

Export Sales

The demand for cotton was still strong for the week ending March 3. For the 2021/2022 crop year, shippers booked new sales of 354,200 Upland bales and 700 Pima bales. China was the biggest buyer with 170,300 Upland bales, followed by Turkey (70,500), Pakistan (49,600), Vietnam (35,400), and Indonesia (7,100). Although Pima sales were lower than what has been seen recently, a marketing-year high of 22,500 Pima bales were shipped. However, combined shipments were below average for this week of the year at 343,800 bales. The shipping pace will need to increase substantially over the next few weeks in order to get close to the USDA’s marketing year export target, but we are still in peak season and several higher-than-average weeks are likely.

Weather and New Crop Outlook

Cold air will be moving in Friday and stay over the weekend bringing freezing temperatures and ice. The burst of cold air will move out quickly and bring unseasonably warm temperatures throughout next week. Overall, March is expected to be mild where temperature and weather are concerned. The mid-week outlook shows another system moving through the Cotton Belt region that may use the influx of moisture from the Gulf to create strong storms. Besides this little chance of moisture, West Texas has remained dry and is still considered to be in severe or extreme drought. In contrast, states in the Southeast and along the Southern Coast received relieving moisture this week. The overall outlook of drought for the Cotton Belt through April, May, and June is grim. Between drought conditions and higher commodity prices, cotton will still be fighting for acres in the upcoming planting season.

The Week Ahead

The ongoing conflict between Russia and Ukraine is still taking up headlines and contributing to volatility in almost all markets. Cotton prices have been negatively impacted due to this conflict. The upcoming weeks will hopefully provide more clarity on anticipated cotton acreage for the new crop year.

In the Week Ahead:

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