December 3, 2021

• “Risk Off Moves” Take Place Across All Markets
• Vietnam, China, Turkey and Pakistan Week’s Top Buyers
• Harvest Pace Catches Up and Exceeds Five-Year Average

Cotton futures fell sharply with the rest of the markets as traders returned from Thanksgiving to the news that South Africa had identified a coronavirus variant that the WHO subsequently named “omicron”. Prices attempted a rally on Sunday night, but heavy selling of unusual volume continued through the week until Thursday, when prices touched a low of 102.50 cents per pound. March futures settled at 103.70 cents Thursday, down 12.08 cents for the week. Open interest fell 20,747 contracts from last Wednesday’s close (before Thanksgiving) to 241,077 contracts as speculative traders ran for the exits through heavy volume. The number of open contracts is now at its lowest since late July.

Outside Markets

This week’s drop had everything to do with the “risk off” moves across all markets. With investors already edgy about the possibility of an accelerated taper and rate hikes from the Federal Reserve, which is generally bearish for the stock market, the appearance of great uncertainty regarding the omicron variant was too much to bear. Stocks pushed sharply lower through Wednesday, although the S&P 500 was able to recoup some losses on Thursday. Treasury yields also fell sharply as investors fled to the bond market for safety. Crude oil seems to have had the worst of it, falling 13% last Friday alone. With financial markets still assessing the risk of the new coronavirus variant, which is likely to take a few more weeks, outside markets may continue to be a source of instability for cotton.

Export Sales

Although prices were much higher for the week ending on Thanksgiving Day, exporters were able to make net new sales of 374,900 Upland bales and 6,400 bales of Pima. Four large buyers accounted for the vast majority of sales, namely Vietnam (147,100 bales), China (125,200), Turkey (55,000), and Pakistan (36,600). Such strong sales despite high prices confirms that prices did not fall for lack of demand, but because of the price shock in outside markets. Shipments, however, have continued to disappoint traders, and last week’s 73,700 bales were the lowest amount shipped at this time of year on record. Even taking Thanksgiving into consideration, many traders worry about how much of the USDA’s forecasted 15.5 million bales we can actually ship.

The Week Ahead

This week’s Crop Progress Report was the last of the season and thankfully showed that harvest pace has caught up to and even exceeded the five-year average. Traders will still be watching the daily classing report and taking in cotton in the near-term, but the USDA’s WASDE and Crop Production reports will take center stage next week. Following such a price decline, anxious traders will be trying to interpret the report to see whether there is something they missed.

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 11:00 a.m. Central – WASDE and Crop Production Reports
• Thursday at 2:30 p.m. Central – Cotton-On-Call