May 27, 2022

• Recession is Starting to Feel Inevitable
• Largest New Crop Buyers of the Week: El Salvador, Turkey and Pakistan
• Rain Across the Southwest was the Big News

July futures whipsawed traders this week, twice posting a trading range in excess of 600 points. Although prices for the lead contract fell back below 142 cents per pound last Friday, they also rallied back above 147 cents on Wednesday before falling back to a one-month low on Thursday. July futures finished the week at 140.61, down 709 points for the week. New crop futures faired better than July, but moved in the same direction. The December contract settled at 124.33 on Thursday, down 389 points. Volumes were higher this week, and open interest bucked its downtrend gaining 6,592 contracts to reach 209,517. 

Outside Markets

Economic gauges continue to flash red with Q1 GDP at -1.5%, inflation readings still high and housing market indicators back to pandemic level lows as mortgage rates have risen dramatically in the past six months. Judging by the headlines, recession is starting to feel inevitable. Ironically, this is the very thing that has cheered some investors who are hoping that economic pain will soon be acute enough that the Federal Reserve will have to loosen up at least enough to moderate its rate hike schedule, despite the release of hawkish comments in the minutes of the last Federal Open Market Committee meeting. Bonds rallied this week and the U.S. Dollar Index fell. Stronger results on this week’s retail earnings reports also helped to cheer the market.

Export Sales

For the week ending May 19, U.S. cotton shippers were able to arrange net new sales of 37,000 bales of old crop Upland cotton and 95,400 bales of new crop. The largest buyer of old crop was India (21,200 bales), and the largest buyers of new crop were El Salvador (22,300), Turkey (19,800), and Pakistan (19,100). Shipments were near the average for this current week of the marketing year, but still lag behind what needs to be reported to hit the USDA’s target of 14.75 million bales for this season. High prices have yet to produce any major reduction in U.S. export commitments, although it is clear demand has slowed. The next few export sales reports before the expiry of the July futures contract and the complete shift of focus to December will be critical for the market.

Weather and Crop Progress

Rain across the Southwest was the big news of the week. While many in the market may be assuming the rains were a game-changing event, that is only half-right for the High Plains. There was indeed significant rain that will help get a stand started in areas from Lubbock north through Oklahoma and central Kansas. Most of the territory south of Lubbock was not as lucky. Most of that predominantly dryland territory received below an inch of rain, which does little to alter the extreme drought. Even in the luckier areas, follow up rains will be necessary to keep the dryland crop going. Unfortunately, the seasonal outlook calls for lower than average rainfall and higher than average temperatures. More unexpected systems will have to roll through this region to counter the base case of hotter, drier weather.

The Week Ahead

Cash market traders will be deeply focused on their remaining fixations in July, just as Index fund traders will be focused on moving forward their long positions. In the background, crop development and progress will be a key concern as many are watching to see whether this week’s rains will make a difference for Southwest production. Export sales will, as always, be a key concern.

In the Week Ahead:

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