July 28, 2023

• The Dow Snapped a 13-day Winning Streak After Fed Raised Interest Rates 25 Basis Points
• Net Reductions that were Reported on the July 20 Export Sales Report Weighed on Market
• Excessive Heat in Southwest is Forecast to Continue in Upcoming Week

December futures had eight days of consecutive gains, reaching their highest level since August 2022, but fell sharply to finish the week. Cotton futures continued their rally this week, catching support from macro tailwinds and speculative buying. News out of China that the government is considering economic stimulus measures and worries how the heat wave across the Southwest will affect the crop provided further support. December futures hit a high of 88.39 cents per pound on Thursday but plunged upon the release of a weak U.S. Export Sales Report. For the week ending July 27, December futures finished at 84.38 cents per pound, up just 7 points for the week. Trading volumes were heavy this week, and total open interest increased 20,828 contracts to 202,972, reaching its highest level since February.

Outside Markets

Stocks were higher most of this week but weak macroeconomic data curbed gains on Thursday, July 27. Optimism where inflation is concerned, and overall strong quarterly earnings helped boost the market early on. The Dow rose for 13 consecutive days, the longest winning streak since 1987, but the streak was broken on Thursday. The Federal Open Markets Committee (FOMC) met this week and raised interest rates 25 basis points, bringing interest rates to the highest level since March 2001. Although this increase was expected, the move caused major indexes to finish lower for the week. U.S. Gross Domestic Product rose 2.4% for the second quarter, coming in stronger than what many analysts expected. The job market continues to show resilience. Initial unemployment claims fell to 221,000, which is a 5-month low. The Fed did not give any indication whether there would be more interest rate hikes, but analysts have become more confident that a soft landing may occur where the U.S. economy is concerned. The U.S. Dollar was mixed but gained ground at the end of the week from the stronger than expected economic data released on Thursday.

Export Sales

Tuesday, August 1, will mark the beginning of the 2023/24 marketing year. While this week’s net reductions were prominent, it was not an entirely surprising number. For the week ending July 20, net reductions of 18,700 Upland bales were reported for the 2022/23 crop year. Of the total 23,900 bales cancelled, 19,900 of those bales were from Turkey. There is little cotton left to sell for the 2022/23 crop, so the new crop sales are the biggest determinant of demand right now. Net sales for the 2023/24 crop year totaled 80,600 bales, which is a bit lower than what is typically seen at this point in recent years. In addition to disappointing sales, shipments were also lower than what was expected. A total of 197,800 bales were shipped for the week, meaning the U.S. will likely not hit the 12.9 million bale export target set by USDA. A net total of 300 Pima bales were sold for the current marketing year and 4,900 bales were booked for the next marketing year. Shipments for Pima were also down from last week, with 3,200 bales exported.

Weather and Crop Progress

Heat stress has become a major concern across areas in West Texas, Oklahoma, and Kansas. Excessively hot temperatures have continued to be persistent, marking one of the hottest July’s on record. The extreme heat is set to continue into next week. Rain and seasonable temperatures would be welcome to ease the stress from heat. Defoliants have begun to get sprayed, meaning harvest is close in South Texas. Although it has also been hot in South Texas, the heat and open skies will ensure that harvest will advance without interruption. Overall crop conditions improved slightly throughout the country. As of July 23, 78% of the cotton crop is squaring and 37% is setting bolls, both right on pace when compared to average.

The Week Ahead

Next week should be another relatively quiet week where cotton news is concerned. The China Reserve will begin auctions on July 31, so traders will monitor the impact that has on U.S. cotton prices. As always, the weather forecast, Export Sales report, and the Crop Progress and Condition report will be closely watched.

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