November 18, 2022

• Economic News Kept Outside Market Mixed
• Export Sales were Dismal
• Arctic Front Stuck Around                                            

December options expired last Friday, keeping activity interesting as traders were adjusting their positions before the day’s close. News of China relaxing Covid restrictions helped boost cotton prices going into the weekend. Hawkish remarks from the Fed took over on Monday, pushing prices lower to start the week. However, things took a turn on Tuesday when weaker-than-expected macroeconomic data was released, helping December futures touch the limit before settling 346 points up for the day. Strong retail sales on Wednesday sent prices lower and a weak Export Sales Report on Thursday kept prices low. December futures settled at 87.04 cents per pound, up just 66 points for the week ending Thursday. First Notice Day is next Wednesday, meaning most attention has shifted to the March contract. March futures settled at 85.28, up 72 points compared to last week. Concerns of demand and outside market data continue weighing on cotton prices. Total open interest continued to drift lower, losing 34,720 contracts to finish the week at 196,112.

Outside Markets

Economic news kept outside markets mixed, with most major indexes eventually settling lower to finish the week. Stocks started off strong after closing with explosive gains to end the week. The Producer Price Index (PPI) rose 8% year-over-year in October, down from the 8.4% reported in September. The slowdown in PPI helped fuel a rally in stocks before talks continued about how the Federal Reserve would continue to raise interest rates. The market became cautious once again and fell upon the release of strong retail sales data. Retail sales were higher than expected for the month of October, with a rise of 1.3% being reported. Additionally, a stronger than expected labor market was reported again, with initial unemployment claims unexpectedly falling to 222,000 for the week. The resilience of consumers and strong labor market gives a strong signal that the Fed has room to keep raising interest rates. The dollar fell to a three-month low mid-week, helping commodity markets before recovering some of its losses to end the week.

Export Sales

Compared to last week, export sales were dismal for the week ending November 10. The Export Sales Report showed 25,100 Upland bales were booked, the lowest on record for this week in the marketing year. Recent price activity and demand concerns have a lot to do with the far-below average sales. Sales were spread out this week with Taiwan buying 5,800 bales, China purchasing 5,700 bales, Turkey booking 4,800 bales, and Bangladesh buying 4,100 bales. Shipments were the only positive aspect of this report, with a total of 183,000 bales getting exported for the week. Pima sales were also slower with a minuscule 300 bales getting booked for the current crop year and only 800 bales getting shipped.

Crop Progress and Weather

After weeks of mild, seasonal temperatures, an arctic front blew in that has stuck around the past week. Along with frigid temperatures, the cold front did bring some snow to areas across the Panhandle of Texas and Oklahoma. A major push of cold air will be coming through Texas over the weekend before heading across the Southeast early in the week. Besides the snow received in some areas recently, the week to come is expected to be dry in areas throughout the Cotton Belt. Milder conditions are expected to arrive early to mid-week throughout the Southwest, which should allow ideal weather to keep the harvest pace moving along. Harvest is still progressing ahead of pace in the United States, with 71% harvested already, ahead of the five-year average of 63%.

The Week Ahead

While some traders will be waiting to see whether there are any fireworks in the December futures delivery process that begins with First Notice Day next Wednesday, the rest of the market is mostly done with transitioning their positions from December futures to March. With Thanksgiving being next week, many reports will have a delayed release, with dates being noted below. Besides holiday delays, traders will keep their attention on macroeconomic data and the usual weekly reports to see what direction cotton prices might take.

The next issue of Cotton Market Weekly will be released on Wednesday, November 23.

In the Week Ahead:

• Monday at 3:00 p.m. Central – Crop Progress and Condition
• Friday at 7:30 a.m. Central – Export Sales Report
• Friday at 2:30 p.m. Central – Cotton On-Call
• Monday (Nov. 28) at 2:30 p.m. Central – Commitments of Traders