August 4, 2023

• Major Indexes Closed out the Month of July with Overall Gains
• Weak Export Sales and Shipments Reported for Week Ending August 3
• Deteriorating Crop Conditions Noticeable in Texas

December futures traded in a two-sided fashion, struggling to find direction throughout the week. The cotton market faced macro headwinds much of the week, but prices eventually recovered to finish higher. Overall, it was a pretty quiet week for the market, with much of the activity happening when speculative traders hit technical buying or selling points. The market found support from continued worries about the condition of the Texas crop and the commencement of Chinese Reserve sales. The market managed to shake off weak export sales to finish basically unchanged for the week. For the week ending August 3, December futures finished at 84.70 cents per pound, up 32 points from the week prior. Overall volume continues to rise, and total open interest increased 6,784 contracts to 209,756.

Outside Markets

Major indexes closed out the month of July with overall gains, but so far August has been a different story with mixed economic news keeping stocks trading back and forth. The Personal Consumption Expenditure (PCE), which is the Fed’s biggest gauge for inflation, rose 3% year-over-year. While this was less than expected and stocks increased from the news, it still shows rising prices and elevated inflation. Major indexes came under pressure when Fitch Rating Service downgraded the U.S. credit rating. Although the news caused stocks to retreat, the U.S. Dollar responded by strengthening against major currencies. A continued production cut announced by Saudi Arabia sent crude oil prices up, which helped bolster cotton prices at the end of the week.

Export Sales

With the new marketing year beginning this week, it was no surprise to see net reductions for the 2022/23 crop year. Many traders are wrapping up positions or rolling sales to the 2023/24 crop year, and as expected, sales were short the week ending July 27. For the 2022/23 crop year, net reductions of 9,900 Upland bales were reported. Sales for the 2023/24 crop year were also weak for what is typical at this point in the year. A net total of 33,900 Upland bales were booked, showing that mills were not in the market with last week’s higher prices. Shipments were disappointing as well. A total of 194,600 bales were exported, meaning USDA will likely lower the 12.9 million bale estimate 2022/23 export number on next week’s World Agricultural Supply and Demand Estimates (WASDE) report. There was no Pima cotton sold for the current marketing year, but 1,700 bales were booked for the next marketing year. Shipments for Pima were also down from last week, with 1,200 bales shipped.

Weather and Crop Progress

The narrative has not changed when talking about excessively hot temperatures across the Southwest. Worries of heat stress might have helped boost the market, but the crop has not been as lucky. Rains and seasonable temperatures are desperately needed in the coming weeks, but the high temperatures and dry weather are set to continue. The hotter weather and open skies in South Texas; however, have allowed harvest to proceed without interruption. The deteriorating condition of the Texas crop was noticeable in this week’s Crop Progress and Condition report.  The overall crop in the U.S. also deteriorated slightly, with 6% rated as “Excellent”, 35% as “Good”, 28% as “Fair”, 18% as “Poor”, and 13% as “Very Poor”.

The Week Ahead

The final export sales report for 2022/23 will be watched closely next Thursday to see if the export estimate on Friday’s WASDE release needs to be revised after recent slow shipments. After that, the only other major news expected next week will be Friday’s WASDE report, which coincides with the first NASS production estimate for this season and the first look at certified acreage from the FSA.

• 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
• Friday (August 11) at 11:00 a.m. Central – WASDE Report