July 01, 2022

• Treasuries Recouped Some Losses This Week
• Turkey Largest New Crop Buyer
• USDA Acreage Adjustments Modest and Mostly Negative

December futures posted a large 1,160 point-wide range this week. Prices continued to fall sharply on heavy trading volumes through Tuesday morning when futures finally found support. Tuesday’s low was 91.20 cents per pound, which was the lowest price since last September. Thankfully, December futures were able to hold gains on Wednesday, moving up by the daily price limit. Thursday’s settlement was 98.84 cents, down just 317 points for the week. Although open interest stabilized by the middle of this week, it was still down 8,144 contracts to finish the week at 175,609. Open interest is now back in the same range as the first summer of the pandemic.

Outside Markets

Last week’s bear market rally in stocks came to an abrupt end this week, as the market lost confidence that Fed hawkishness and inflation could have turned a corner. While economic data this week did show a slight faltering in the pace of inflation, prices are still rising across many sectors. Personal incomes are also still rising, which is a good thing, but it is clear that the market still believes that the Federal Reserve has a lot of work yet to do. However, there is some uncertainty about whether the economy is already slowing enough to pause inflation. Risky assets like commodities and stocks continued to sink, which shows the market doubts demand. On the other hand, treasuries recouped some losses this week lowering yields, which implies that investors have already started to doubt how aggressive the Fed will need to be once again.

Export Sales

Last week’s market chaos dampened new sales as mills seemed to be waiting for some stabilization before taking advantage of lower prices. For the week ending June 23, U.S. cotton shippers booked net new sales of 48,100 bales of old crop and 46,300 sales of new crop. The largest increases in old crop were for Vietnam (33,900 bales) and China (25,400). Unfortunately, a handful of cancellations totaling 36,000 pulled the total down. Turkey was the largest new crop buyer at 25,500 bales. Shipments continue to perform very well, with a total of 370,800 bales (Upland and Pima combined). Next week’s Export Sales Report is likely to be stronger since the market stabilized. There have yet to be any large-scale cancellations to evidence any demand destruction downstream.

The Acreage Report, Weather and Crop Condition

The USDA released the June Acreage report at 11 a.m. Central on Thursday, providing the first major update to U.S. production prospects since the March Prospective Plantings figures. This data updates what the USDA will use to estimate U.S. production going forward and therefore has a direct impact on market expectations of the USDA’s July balance sheet. Outside of Texas, where the acreage estimate was increased 300,000 acres to 7.1 million acres, acreage adjustments were modest and mostly negative. Net of other adjustments, the total estimated acreage of the U.S. increased 244,000 acres. Given the decrease in the Mid-South and the increase in the Southwest, it is not clear that the USDA’s final production estimate will change. In fact, if the current forecast for hot, dry weather actualizes, we may actually see the USDA lower its production forecast. The U.S. crop already has the lowest percentage rated “Good” or “Excellent” at this time of year since 2011, and there is plenty of evidence to indicate that this year’s abandonment in the Southwest will be exceptional.

The Week Ahead

Independence Day will shorten trading next week, but the usual roundup of weekly reports will take central focus. Tropical weather will receive casual surveillance, too. Outside markets are still a central focus following the past few weeks’ meltdown, but traders’ minds are already turning toward the July WASDE report, too.

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
• Friday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton-On-Call