NOVEMBER 30, 2018
DEMAND IMPROVES, BUT PRICES LITTLE CHANGED
- Will Trump-Xi Meeting Resolve Trade Dispute?
- How Do Mid-South and Southeast Grades Compare to Southwest
- Other Markets Compensate for China’s Cancellations
It has been two weeks since our last report, and we hope everyone enjoyed the Thanksgiving holiday. One would think two weeks’ worth of activity would leave a lot to cover, but the truth is that there have only been a few notable changes in the market. December futures entered their notice period one week ago, giving way to March as the lead contract. Demand also has improved over the past two weeks, but the macroeconomic picture also has grown a little cloudy. Nevertheless, all markets are still holding their breath for the outcome of the Trump-Xi dinner at the G-20 meeting in Argentina, while March futures settled today just 62 points higher than they were two weeks ago.
WATCHING THE MARCH FUTURES CONTRACT
Of course, March futures did not travel the 62 points up to 78.91 cents per pound in a straight line. Merchant cotton prepared for delivery against futures contracts continued to weigh on December futures two weeks ago, which dragged March futures down with them. March traded to an eight-week low of 77.18 cents this past Monday morning before beginning to turn back higher. Fortunately, March futures recouped the losses over the rest of the week. In fact, the 78.91 settlement price is March’s highest settlement in three weeks.
LOWER GRADES COULD AFFECT SALES COMMITMENTS
Both supply and demand factors have been helping the market this week. While harvest is progressing very well in the Southwest, the challenges that the Mid-South and Southeast have faced are evident in the daily classing reports. While 31 has been the predominant color grade for Texas, Kansas, and New Mexico, Virginia is the only state east of here that can boast that this week. For the season, more than half of the Mid-South and Southeast crops have been classed 41 or worse. The quality distribution certainly will make it hard for exporters to cover their current sales commitments, most of which require a 31 color grade.
EXPORTS NOT AS DEPENDENT ON CHINA
From the demand side, the past two weeks’ U.S. Export Sales reports have been better than necessary. Two weeks ago, net new sales hit 210,500 bales, which is the highest level this marketing year. Despite Thanksgiving last week, net new sales were 176,800 bales. Although China cancelled Upland orders during the past two weeks, other countries are stepping in. Disappointing crops in Pakistan and India have increased their orders. Turkey and Vietnam also have re-entered the market. The strong sales are a good reminder that U.S. exports are far less dependent on China than they once were.
HOPING FOR A CEASEFIRE
Unfortunately, the world’s supply and demand situation just is not at the top of traders’ minds going into the weekend. At long last, Presidents Trump and Xi will sit down face-to-face at the G-20 meeting in Argentina. Both countries’ executive staffs and bureaucrats have been working feverishly to prepare for the meeting, but many experts believe the best-case scenario coming out of the meeting would be a “ceasefire” and a timeline for resolving key issues. The lack of certainty has weighed heavily on markets. U.S. apparel and textile importers still source around a third of their needs from China. The possibility of tariffs on these products next year has pushed many to delay orders, which has slowed Chinese consumption. If this weekend’s meeting either removes China’s tariffs on U.S. cotton or removes the threat of U.S. tariffs on China’s textile and apparel, most traders will turn their focus back to the balance sheet, including the many bullish factors they have ignored for the past few months.
IN THE WEEK AHEAD:
- The CFTC Cotton On-Call report to be released Friday at 2:30 p.m. Central Time.
- The Export Sales Report will be released Thursday at 7:30 a.m. Central Time.
- The CFTC’s Commitments-of-Traders will be released Friday at 2:30 p.m. Central Time.
