May 20, 2022

• Bad Earnings Reports Threw Buckets of Cold Water on the Reversal
• Export Sales for the Week Shocked the Market
• Window for a Good Planting Season is Rapidly Passing

July futures have put on a wild performance since last Thursday. Prices rallied as high as 151.95 cents per pound on Tuesday before giving back all of the week’s gains Wednesday. It seemed that prices would continue to slump on Thursday as the July contract made a fifteen-day low at 141.12 cents before exploding higher. With the larger reversal to the upside on Thursday, July futures settled at 147.70 cents, gaining 217 points for the week. December futures settled at 128.22 cents, up just 55 points for the week. Despite the large trading range and fast markets, daily volume was relatively normal. Open interest was up just 163 contracts to 202,925.

Outside Markets

While outside markets started the week higher in hopes of a “relief rally” amidst the current down trend, a few bad earnings reports from key retailers threw buckets of cold water on the reversal. Stocks tumbled, this time led lower by the retail giants whose earnings report reignited panic concerning both inflation and rising interest rates. Federal reserve governors and committee members have also been in the press assuring the public that they will tighten the screws on inflation and acknowledging how badly the institution missed the current inflationary situation. This may comfort many consumers, but it is unclear that the Federal Reserve can steer the economy back out of inflation without causing a recession. A large increase in our capability to supply goods, food, and energy is needed quickly, but that does not appear forthcoming. On the brighter side, the U.S. Dollar softened somewhat versus trading partners, which was a welcome break in the headwinds for U.S. exporters.

Export Sales

Export sales for the week ending May 12 shocked the market. Although there is little left to sell and rumors of cancellation from China have been swirling among merchants, U.S. cotton shippers were still able to put together 110,900 bales of net new Upland sales with an additional 25,400 bales for delivery next marketing year. The two largest buyers for this week were India (34,100 bales) where mills are scrambling to cover a shortage before their cotton import tariff is reinstated at the end of September, and Vietnam (29,900). Shipments were also healthy last week, with 343,200 Upland and 10,300 Pima bales leaving the US. Shipping is still behind pace to reach the USDA’s target, but data indicates that shipments will continue at a heavier than usual pace past the peak shipping season. In any case, demand for U.S. cotton is still evident in the markets.

Weather and Crop Progress

A few scattered thunderstorms blessed a small percentage of farmers with enough rain to plant this week. Unfortunately, the vast majority of growers, especially in the Southern High Plains, Southern Rolling Plains, and Edwards Plateau, have yet to receive even an inch this season. What little moisture has fallen in most areas has already evaporated away in the unseasonable heat and high winds. The window for a good planting season is rapidly passing. While there are more storms in the forecast early next week, the outlook for the High Plains remains light. Cotton areas in South Texas are more likely to get some rains, but for the areas in the Coastal Bend it may already be too late. Hopefully both rain and cooler weather will come soon to give this crop a chance.

The Week Ahead

Planting progress and weather are the key concerns looking ahead. Merchants will also be tending to the large unfixed on-call position in July and making sure their end of season shipment execution goes as smoothly as possible. 

In the Week Ahead:

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