September 9, 2022

• Outside Markets Continue to React to Hawkish Stance of the Federal Reserve
• Southwest Saw Little Precipitation and Warmer Temperatures
• Next Week is WASDE Week

December futures continued last week’s rocky finish by going into the Labor Day weekend with another day of limit-down loss on Friday. After the Labor Day holiday, prices gained modestly Tuesday before falling to fresh lows again on Wednesday. Thankfully, buyers re-entered the market Thursday, helping prices recoup some of their losses. Despite the positive turn, December cotton marked an overall loss of 437 points for the week, finishing at 103.84 cents per pound. The total number of open contracts decreased 1,120 contracts to 211,217, implying that exiting longs were largely responsible for the selloff (as opposed to new sellers entering aggressively). Volume was heavy through Friday, but quickly returned to its recent average over the next few days.

Outside Markets

Outside markets continue to react to the hawkish stance of the Federal Reserve. Yields on treasury notes have moved back toward their June highs even as stocks moved back down. The U.S. Dollar Index also pushed to a fresh 20-year high, which has provided a headwind for commodities. Monetary tightening from the ECB this week also helped cool the market’s inflation expectations, which put even more pressure on commodities. On top of it all, China is extending certain lockdowns in large city centers that will continue to drag on the commodity consuming country. Without the supply constraints and production problems plaguing producers of all kinds this year, commodities, including cotton, would likely have fallen even further.

Crop Progress and Weather

The Southwest saw little precipitation and warmer temperatures over the past week. A small front will move in over the weekend bringing along cooler temperatures for a few days. The rest of the week will have near-normal temperatures for this time of the year, meaning warm rather than excessively hot as it was earlier this season. Long-range forecasts are currently predicting a drier fall, but we still have the majority of hurricane season left. Although there are no storms currently developing in the Gulf, hurricanes are unpredictable and could bring along wetter conditions suddenly. Over in the Eastern part of the Cotton Belt, Georgia and the Carolinas’ crop is scheduled for heavy, unwelcome rains on their rapidly opening cotton. We hope the excessive rainfall doesn’t ruin what is expected to be one of the better crops in the country this year.

The Week Ahead

Next week is WASDE week. Little else matters to most cotton traders on Monday as the USDA will release updated forecasts for global supply and demand estimates. The two most eagerly anticipated data points will be the U.S. crop and World Demand. Regarding the crop, traders and analysts will be scouring the Crop Production Report to see how the USDA incorporates the August FSA acreage, which happened to show significantly larger acreage. Secondly, mills and traders are wondering whether the USDA will somehow incorporate recent demand hiccups through lower global use. Alongside these big changes, there will be watchful eyes on Pakistan’s production in the wake of catastrophic flooding that has ruined many lives, let alone the crop. Lastly, the market is eagerly awaiting the resumption of U.S. export sales next Thursday, which will show an entire month’s activity.   

• Friday at 2:30 p.m. Central – Commitments of Traders
• Monday at 3:00 p.m. Central – Crop Progress and Condition
• Monday at 11:00 a.m. Central – WASDE and Crop Production
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton On-Call