June 18, 2021

• Cotton Sold Off with Federal Reserve Announcement
• Broader Markets in “Risk Off” Mode This Week
• Cotton Sales Remain Healthy in Export Markets
• Nation’s Cotton Planting Back on Track

It was a brutal week for cotton futures. December futures prices started the workweek with a sharp drop to a low of 83.92 cents per pound on Monday morning, but recovered much of the losses over the rest of the session and during Tuesday’s trading. Unfortunately, cotton sold off with the rest of the commodities following the Federal Reserve’s announcement (more on that below). December futures prices touched a low of 83.37 cents on Thursday and settled at 84.06, off 415 points for the week. July futures, where traders have relatively few positions remaining, fell 319 points to 84.17.

Outside Markets

Broader markets were clearly in “risk-off” mode this week. Even before the Federal Reserve’s announcement, media attention had already come to focus on stories surrounding China’s efforts to cool inflation in their markets. With further inflation data making the Federal Reserve’s stance on “transitory” inflation untenable, traders and investors had already begun to sell out of some risk positions. While there was little policy change in Wednesday’s announcement, traders focused on the rate governing committee’s admission that inflation was high and a “sped up” timeline for interest rate hikes. It should be noted that the speedier timeline has rate hikes coming in two years instead of in three, but the shift in language was enough to spook traders. While stocks were mostly able to withstand the onslaught of selling, commodities suffered greatly. Cotton was actually a relatively strong performer. Soybeans and silver led the way down falling 8.5% and 6.7% respectively.

Export Sales

Cotton sales remain healthy in the export markets. For the week ending June 10, shippers were able to arrange 214,200 bales of Upland (combining 2020/2021 and 2021/2022 sales) and 2,300 bales of Pima. Pakistan was the single largest buyer this week, picking up 53,000 bales of old crop and 84,600 bales of new crop. Shipments were stronger than needed to meet the USDA’s June estimate of 16.4 million statistical bales, giving some endorsement to their upward revision. For the current week of the marketing year accumulated exports are at their highest level ever.

Crop Progress and Weather

Monday’s Crop Progress and Condition Report showed a gigantic 28% jump in Texas planting pace to bring the nation back on track. 90% of the crop is now planted and the last bits should be in the ground over the next two weeks. The late start to the crop and the constant cloudy rainy weather in South Texas and the Mid-South over many of the last several weeks is showing up in the slower pace of squaring, particularly in Arkansas and Mississippi. Thankfully crop ratings have improved with the sunshine in the Southwest, with the share of Texas cotton rated “Poor” dropping from twenty percent to just ten percent and the share of cotton rated “Excellent” rising five percentage points to eight percent.

There is a tropical system in the gulf that is not likely to become a hurricane, but will become a depression that may dump a large quantity of rain on the eastern half of the Mid-South before moving over the mid-Atlantic states. A path further to the east over Southwest Georgia through the Carolinas would be more welcome, given that the Southeast could still handle additional moisture. The same cannot be said for the Mid-South where the extent of damage from recent heavy rains and flooding is still unknown. Unfortunately, there is little to no rain in the forecast for West Texas where high temps have quickly evaporated away moisture. There is some temperature relief expected next week, but this region will need another rain in the next few weeks to hold on to early gains.

The Week Ahead

Traders will spend the weekend watching how the tropical depression forms in the gulf, but may also be keeping an eye on the currency markets for signs of stabilization in the value of the U.S. dollar, which surged after the Federal Reserve announcement. With old crop mostly out of the way, crop progress reports and the weekly export sales reports are the only key data points to punctuate what is usually a very slow time of year in the cotton market.

In The Week Ahead:

• Monday 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