October 15, 2021

• Investors Adjust Positions in Expectation of Strong Inflation Numbers
• Turkey, Mexico and China Biggest Buyers of U.S. Cotton this Week
• U.S. Production Estimate Cut to 18 million Bales
• Weather to Blame for Slow Harvest Pace

December futures posted four volatile days of declines before turning back up on Thursday. Prices made a fresh life-of-contract high last Friday at 116.48 cents per pound before giving back all the day’s gains and continuing lower through the next three days. 103.50 cents was the lowest price to print on Wednesday and the week’s low. With a strong snap higher, prices moved back up Thursday and settled at 107.10, up 324 points for the day but down 451 points for the week. Open interest shed 4,632 contracts to finish the week at 284,568, with some recent buyers heading for the exits. Daily trading volume remained very high as traders continued to adjust positions in the face of large daily price movement.

Outside Markets

Stock markets trended lower for most of the week as investors adjusted positions in expectation of strong inflation numbers and talk about the Federal Reserve starting to taper securities purchases in November or December swirled through the markets. Better than expected jobless claims and strong earnings reports put investors back into a buying mood on Thursday, just as Producer Price Index data came in below expectations to soothe inflation worries. As a result, stock indices rallied to recoup the week’s losses. The USD Index also let go of recent gains, putting some tailwinds behind the entire commodity sector.

Export Sales

The Export Sales Report was surprisingly good considering how high prices were for the week ending October 7. Net new sales were listed at 146,700 Upland bales and 6,400 Pima bales for the 2021/2022 marketing year. The biggest buyers this week were Turkey (62,000), Mexico (52,900), China (12,100), Thailand (9,500), and Peru (5,800). Total shipments for this week were 105,800, which is still below average but not surprising with how tight stocks are currently. We expect this number to go up as more cotton is harvested. The delay has certainly hurt early season shipments. Net new sales for the 2022/2023 marketing year totaled 10,600 bales, mainly made to Mexico. 

 WASDE and Crop Production Report

The USDA released October updates to the World Agricultural Supply and Demand Estimates and its U.S. Crop Production Reports on Tuesday. The USDA cut expected U.S. production by 505,000 bales to just over 18 million. Texas production forecast was cut 600,000 bales to 8 million, but small increases in other regions partially offset the difference. The smaller supply forecast resulted in a direct decrease to US ending stocks, which were revised 500,000 bales lower to 3.2 million.

While the U.S. balance sheet grew much tighter, the USDA actually loosened World stocks slightly. Pakistan’s production forecast rose 1.5 million bales to 6.5 million, offsetting the U.S. cut and a similar cut to Indian production. The USDA also cut consumption by 740,000 bales to 123.4 million as a decrease of one million bales in China was partially offset by increases in Pakistan, Turkey, and Mexico. Although the USDA also cut the World Beginning Stocks by one million bales, the higher production and lower consumption forecasts increased the forecast for 2021/2022 ending stocks by 460,000 bales to 87.13 million bales.

Crop Progress and Weather

Harvest pace continues to progress well behind the usual pace. This week’s Crop Progress and Condition Report showed just 20% harvested which is both the slowest pace in several years and six percentage points below the average pace of 26% by October 10. Weather is mostly to blame. Storms with high winds and hail damaged some crops in West Texas, Oklahoma, and Kansas, while heavy rainfall-soaked central Texas, and further precipitation prevented more fieldwork across the rest of the Cotton Belt. Hopefully the rains have moved off. There will be a wave of cold air through the weekend with potential for a frost in Western parts of the southern High Plains. Weather is much more favorable for the next several days after that with clear skies and average temps returning.

The Week Ahead

Cash markets are becoming more important as the December expiry approaches and traders scramble to cover their immediate needs for near term shipments. Harvest weather is critically important. As always, next week’s Export Sales report will be critical to evaluate whether demand responded to this week’s decline in prices.  

In the Week Ahead

• Friday 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