November 4, 2022

• Strong Dollar Did Not Impact Stronger Cotton Prices
• Upland Sales Hit Marketing Year High
• 55% of U.S. Crop Harvested
• Daylight Savings This Weekend

Cotton had an extremely volatile week but finally ended on a high note after weeks of consistently low closes. After hitting the lowest contract close in two years on Monday, and there seemingly to be no support in sight, prices turned up in an abrupt way. Cotton finished up at the 300-point limit Tuesday, after synthetically hitting the limit twice, and then again at the expanded 400-point limit on Wednesday. What spurred the upward action is still uncertain. There were talks that the market was oversold and trying to correct itself, and rumors were heard that China might exit from the zero-Covid policy currently in place. Putting the various factors together helped boost prices for the first time in weeks. For the week ending Thursday, November 3, December futures closed at 83.00 cents per pound, up 789 points for the week. This is the highest close since mid-October. Total open interest increased to 251,742 contracts, an increase of 4,369 for the week, reaching highs not seen since February.

Outside Markets

Any thought of the Fed slowing down the rising interest rates was halted on Wednesday when another three-quarters of a point increase was released. This is the fourth consecutive three-quarters of a point increase and the sixth time interest rates have risen this year. The still-hawkish stance of the Fed is not surprising considering the better-than-expected economic news that has been released in weeks prior. U.S. jobless claims fell below the forecasted number to 217,000, showing an active labor market and giving the Fed room to increase interest rates more. After the rate release, outside markets fell sharply and continued to trend lower, creating a volatile week of trading on the outside market front. Although stocks were under pressure from the increase, the dollar rose sharply, responding accordingly to the newest rate hike. Interestingly enough, the strong dollar did not impact the stronger cotton prices towards the end of the week.  

Export Sales

For the first time in weeks, the Export Sales Report reported strong sales for the week ending October 27. There is still some demand for cotton, and it was revealed on this week’s report. A current marketing year high of Upland sales was reported at 191,800 bales and 1,200 Pima bales. China was back in the action as the biggest buyer with 122,000 Upland bales booked, followed by Pakistan with 23,200 bales, and Turkey with 15,800 bales. Shipments lagged compared to usual with only 119,000 Upland bales and 100 Pima bales getting exported for the week.

Crop Progress and Weather

Weather was fairly mild throughout the South Plains this week. After receiving moisture early on, wind and warm temperatures came about for the remainder of the week. Any sense of persistent rainfall is not expected over much of the South and Southeast in the coming weeks. Scattered thunderstorms are predicted for West Texas going into the weekend before moving east across the rest of the Cotton Belt. Varying temperatures are expected in the coming weeks as systems of cool air come about only to be replaced by warmer, more seasonal temperatures. Spotty storms will deliver moisture throughout, but overall, the warmer, drier weather is needed as harvest advances. Harvest has been progressing above average across the United States, with 55% of the crop out of the fields already. Lastly, don’t forget that Daylight Saving time ends on Sunday, so remember to move your clocks back. 

The Week Ahead

From a fundamental viewpoint, all eyes will be focused on the release of the WASDE on Wednesday. Barring any surprises, traders will continue monitoring macroeconomic factors, as they have been a large determinant of price action recently. The usual attention will be paid to weather conditions, Crop Progress and Condition, and the Export Sales Report to determine demand for cotton.

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
• Wednesday 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