APRIL 3, 2020

COTTON FUTURES CONTINUE TO FALL THIS WEEK

• Unemployment Claims Set New Record
• Prospective Plantings Report Released by USDA
• WASDE Report to Come Next Week

Cotton futures continued to fall this week, touching a fresh multi-year low of 48.35 cents per pound Wednesday. Prices rallied on Thursday, but still settled at 49.99 cents, down 279 points for the week. Daily trading activity remains fairly high. Heavier volumes are likely to continue next week as well while Index funds and merchants work to move their remaining positions from the May futures into July futures. Options on May futures also expire next Friday. Open interest stabilized in this week’s trading, gaining 5,584 contracts to 198,773.

OUTSIDE MARKETS

Jobless claims set another tragic record this week at 6.65 million new claims as workers who have been laid off in compliance with state quarantine orders continued to file for benefits. The unprecedented wave of joblessness left most traders and investors in a state of confusion about how to move forward, but news that OPEC and Russia may soon be ending their price war helped markets surge in Thursday’s trading as traders hope that lower crude output will spare the energy sector from bankruptcies. Sadly, COVID-19 continues to spread in the U.S. and Europe, causing more states to issue stricter measures and further slowing the economy. It is difficult to see markets resuming an upward trend until the virus is defeated or we see the promise of an end to its spread.

EXPORT SALES

Net new export sales by U.S. cotton exporters totaled 147,500 upland bales for 2019/20 and 111,400 for delivery in 2020/21. Combined shipments of upland and pima were 424,600 bales. This week’s largest buyers were Vietnam (77,500), China (24,500), and South Korea (15,000). Cancellations were noted for a handful of countries, which may become more commonplace as mills under mandated quarantines seek to defer shipments to the summer and fall. Most of this week’s cancellations were matched by new orders for shipment next marketing year (after August 1).

PROSPECTIVE PLANTINGS

On Tuesday, the USDA released the 2020 Prospective Plantings report. Although traders and analysts had forecast 12.7 million acres for cotton, the report called for 13.7, nearly matching 2019. Having been caught off guard, the market fell after the report and through Wednesday’s trading when both December 2020 and March 2021 futures settled at “limit down”, (i.e. the maximum daily decline). It should be noted that the survey on which the report is based is collected from the end of February through the second week of March, when market conditions looked much different than they do today. However, despite cotton traders’ incredulity, the 13.7 million acres reported will be the USDA’s base acreage for the initial 2020/21 U.S. crop projection in May. In other words, the USDA’s planted acreage will not change until after the Acreage report released on June 30.

LOOKING AHEAD

While macroeconomic forces and updates on the war against COVID-19 will continue to dominate the ebb and flow of all markets, agricultural commodity traders will be focused on next Thursday’s WASDE report for the first glance at how the USDA will interpret the impact of international lockdowns on cotton’s balance sheet. Additionally, traders will pay close attention to next Thursday morning’s Export Sales Report as an indication of demand. Neither report is expected to be bullish, but the market will be looking for sufficient bearishness to justify recent sharp declines.

IN THE WEEK AHEAD:

• Friday at 2:30 p.m. Central – Commitments of Traders
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday and 11:00 a.m. Central – WASDE
• Thursday at 2:30 p.m. Central – Cotton-On-Call