AUGUST 10, 2018
FUTURES PLUNGE AFTER USDA REPORT RELEASED
- Worst Day Since June
- WASDE Report Stuns Traders. What’s Next?
- How Much Did USDA Cut 2017-18 Exports?
- What Did USDA Estimate for the Rest of the World?
- South Texas Harvest Making Progress
- Trade Tensions With Turkey Increase
Cotton futures had their worst day since mid-June today. Prices had already crept down to 87.00 cents per pound since touching Tuesday’s high at 89.17, but December futures shot lower after the release of the August Crop Report, settling at 85.23. Trading volume trended higher this week, and the number of open contracts in the market reached a six-week high.
ESTIMATES FOR THE U.S. CROP
The August Crop Report and the World Agricultural Supply and Demand Estimates (WASDE) will remain focal points for the next few weeks. Where traders had been expecting a downward revision to U.S. production, the crop report surprised the market. August is the first month of the year that the National Agricultural Statistics Service (NASS) uses survey data to adjust yields, and crops outside the Southwest are mostly in excellent condition. Rather than decreasing the forecast, USDA predicted another 740,000 bales of production as higher yields in the Mid-South and Southeast more than offset higher abandonment in the Southwest. According to the crop report, the U.S. may well produce 19.24 million bales in 2018-19.
The WASDE report, which does incorporate the higher U.S. crop, had few surprises. Notable revisions included an additional 400,000 bales for U.S. 2018-19 beginning stocks at 4.4 million bales. Lower exports for 2017-18 were expected because of slower than expected shipments in July, but U.S. domestic consumption fell 100,000 bales to 3.25 million in 2017-18, too. U.S. 2018-19 exports were revised higher to 15.5 million, up 500,000 bales. With higher beginning stocks and production outpacing the increase in exports, ending stocks were forecast at 4.6 million, up 600,000 bales from last month.
LOOKING AT THE REST OF THE WORLD
Although the U.S. balance sheet was looser, USDA forecast foreign ending stocks at 72.5 million bales, 1.34 million bales lower than last month. Beginning stocks and production estimates decreased, especially among major exporters such as Australia and India. World cotton consumption moved higher again, especially among major importers such as Pakistan, Indonesia, and Thailand. At 127.6 million bales, 2018-19 consumption is set to be a record.
RECORD EXPORT COMMITMENTS FOR 2018-19
Higher world consumption and lower world production has focus on the United States’ unique ability to meet global demand, which is still strong. This week’s export sales report showed the first week of sales for the 2018-19 marketing year, August 1 to July 31. The 2018-19 season is coming out of the gate with 8.42 million bales committed to the export market, the highest level ever at the start of a marketing year. In the week ended August 2, shippers added 193,900 bales of Upland sales for delivery in 2018-19. Vietnam was the largest buyer.
SOUTH TEXAS HARVEST DETAILS
Trader attention is pivoting from government reports and forecasts to the actuality of ginning and forecasting as the South Texas harvest comes in. For the week ended August 9, 2018, the Corpus Christi Classing Office had classed 85,642 bales. Color grades are very good to-date as weather has been ideal for harvesting. The micronaire average is high, and hopes are that it will come down to normal as we get more of the crop. Growers have yet to sell any of the 2018 crop on
The Seam’s G2B platform, but the number of bales listed in firm offer are growing. South Texas forecasts call for a below-normal Atlantic hurricane season, which may help to speed harvesting and keep up quality of the crop.
UPCOMING FACTORS TO WATCH
Crop progress and weather reports will continue to garner the most attention on a weekly basis. Trade frictions have also been hurting the market more this week. As tensions with Turkey (a major buyer of U.S. cotton) rise, prospects for fresh orders diminish. Unfortunately, political risk likely will continue to be a factor weighing on the cotton market for the foreseeable future. For that reason, weekly export reports remain a central focus.
IN THE WEEK AHEAD:
- Crop Progress will be released Monday at 3:00 p.m. Central Time.
- The Export Sales report will be released Thursday at 7:30 a.m. Central Time.
- The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. Central Time.
- The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. Central Time.
