APRIL 9, 2020

COTTON FUTURES GAINED GROUND MOST OF WEEK

• Governments Worldwide Increase Stimulus Efforts
• Export Sales Report Shows Strong Shipments
• WASDE Report Shows Reduced World Cotton Consumption

Cotton futures gained ground for most of the past week. Despite slipping back to 49.31 cents per pound, the week’s low, on Monday, May futures rallied to a high of 54.50 cents Thursday. Despite bearish market reports, May futures settled at 54.37 cents, up 438 points for the week. Volumes were relatively heavy as merchants and index funds began to more actively move their positions into the July and December contracts. Open interest fell 8,761 contracts to 190,012 and is likely to continue falling since options on May futures expired this week.

OUTSIDE MARKETS

Traders and investors’ appetite for risk grew this week. A slowdown of the rate of new COVID-19 cases in Europe and projections of a peak in late April for the U.S. helped to comfort markets, despite an emergency declaration in Japan and further caution in other countries that another wave of infection could follow as mitigation and quarantine measures ease. Governments around the world also increased stimulus efforts and here in the United States another round of federal aid is already going through the legislature. The Federal Reserve has also released further details of its planned monetary support, which helped to cheer markets. Stocks climbed sharply throughout the week, which helped support cotton and other commodities.

EXPORT SALES

Sadly, this week’s Export Sales Report helped to justify the USDA’s cuts to its U.S. export estimate. Although shipments were very strong at 520,000 bales of Upland and Pima combined, net sales for 2019/20 were a disappointment. Upland gross sales were 181,200 bales but cancellations of 186,400 bales put net sales at a reduction of 5,200 bales. On the bright side, a large portion of this year’s cancelled sales were re-booked for delivery in 2020/21, with new orders there of 107,400 bales. While some mills are starting to buy again, many traders fear that shipments and sales will slow from here.

WASDE REPORT RECAP

The USDA released the April update of their World Agricultural Supply and Demand Estimates at 11 a.m. Thursday. As expected, world cotton consumption for 2019/20 marketing year was reduced sharply to reflect the temporary shuttering of spinning mills because of coronavirus mitigation measures. The USDA cut 7.58 million bales from world use, with the largest cuts in India (down 2.5 million bales to 22.0), China (down 1.5 million to 35.0), and Pakistan (down 700,000 to 10.1 million). World ending stocks were raised to 91.26 million bales, up 7.86 million bales. With so many major importers cutting consumption, the USDA also cut U.S. exports by 1.5 million bales to just 15.0 million. In addition to a small cut in U.S. consumption, the decline in exports lifted the U.S. ending stocks estimate to 6.7 million.

LOOKING AHEAD

The Exchange is closed for Good Friday observance and we wish all our readers a Happy Easter. In the holiday-shortened week ahead, the Export Sales Report is likely to continue to be a central focal point. Crop progress reports are starting to flow in as well. Despite whatever fundamental signals there may be, it looks as if the moment to moment direction of the market will still be heavily influenced by broader market sentiment.

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 at 2:30 p.m. Central – Cotton-On-Call