SEPTEMBER 7, 2018

MARKET SHOWS MORE OF THE SAME WHILE STORMS LOOM

• Higher trading volumes leave trading range in same three-week slump
• Global turmoil impacts the market; Turkey most affected
• Strong U.S. dollar a headwind for U.S. Exports
• Too much of a good thing: hurricane activity picks up

For the past three weeks, December cotton futures have traded within the range of 80.60 to 84.25 cents per pound, and this week was no different. Trading volumes were heavier Tuesday and Friday, but failed to set a new direction. After falling to the bottom of the recent trading range on both Tuesday and Friday morning, prices rallied back to the top. In fact, Friday’s trading set both the lowest and highest price for the week at 81.20 and 83.40 cents respectively, before finishing the day at 81.99.

U.S. production prospects have become a little less certain this week. Monday’s condition report showed a slight decline, but the health of the Mid-South and Southeast crops was still remarkably good coming into this week. Unfortunately, the rosy background provided by the condition report has been somewhat marred by Hurricane Gordon in the Delta states while the Atlantic states’ crop is at greater risk from Hurricane Florence.

EXPORT REPORT SHOWS SOFTENED DEMAND

U.S. export demand softened last week. Net new sales for the week ending August 30 totaled 92,900 bales and shipments totaled 177,300. Again, despite tariffs, China was the largest buyer at 24,500 bales of Upland Cotton. Continual turmoil in foreign exchange markets seems to blame for the weaker orders. Countries that produce as well as import cotton are more likely to focus on consuming domestic supplies since the cost of imports, in terms of their domestic currency, has grown rapidly. The additional political turmoil in Turkey has also limited new orders from that destination, which is a major market for U.S. cotton.

U.S. ECONOMY HEALTHY BUT EXPORTS CHALLENGING

U.S. dollar strength seems likely to continue as the U.S. economy continues its rapid growth. The unemployment rate held at 3.9 percent on this month’s jobs report, and hourly earnings grew more than economists had expected. The good news makes even more room for the Federal Reserve to raise interest rates. Additionally, volatility in many foreign markets has made the U.S. dollar even more of a safe-haven for international investors.

MORE WEATHER APPROACHES

Hurricane weather and the September USDA reports will demand attention next week. Hurricane Florence’s strength and odds of running into the Carolinas seem to be increasing, which could put a significant portion of the Southeast crop at risk. Additionally, more storm systems are forming in the Atlantic. Only the September Crop Production and World Agricultural Supply and Demand Estimates will receive more trader scrutiny than the National Hurricane Center. September’s USDA reports are the most likely source of new momentum to break out of the current trading range.

IN THE WEEK AHEAD:

• Crop Progress and Condition report will be released Monday at 3:00 PM Central Time.
• WASDE report will be released Wednesday at 11:00 AM 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 will be released Friday at 2:30 p.m. Central Time.