APRIL 24, 2020
COTTON FUTURES SETTLE UP FOR THE WEEK
- May Futures Entered Notice Period
- Crude Oil Futures Set Record Low This Week
- Senate Passed Additional $484 Billion in Support
Cotton futures went for a wild ride this week. After making a low at 52.00 cents per pound on Tuesday, following the collapse of crude oil prices on Monday, cotton futures surged higher. Wednesday’s trading even saw prices hit limit up before prices settled near the highs. Thursday’s action saw prices move higher once again in a volatile session that posted the week’s high price at 57.95 cents before settling at 56.88, which is up 409 points for the week and is the highest settlement price in over a month. Trading activity was heavy and resulted in the liquidation of 5,648 contracts to bring total open interest down to 179,168, which is the lowest level in nine months.
As of Thursday’s close, May futures have entered their notice period and the beginning of the physical delivery process that most market participants wish to avoid. Traders have moved nearly all their remaining positions to the July futures contract, which will be the focus from this week forward.
OUTSIDE MARKETS
Crude oil futures set the sort of record that no commodity ever wanted to set, namely the dubious honor of trading far into negative prices as the West Texas Intermediate May contract approached delivery. There are plenty of technical explanations for why the crude futures went negative, but the simplest is that storage is so full that there was not enough capacity to take delivery and thus sellers had to (temporarily) pay people to take it. A little saber-rattling in the Middle East quickly righted the crude markets later in the week, as President Trump authorized lethal force on Iranian boats that had been harassing U.S. naval vessels.
Markets also cheered the additional $484 Billion of support that the Senate passed on Tuesday. The support included additional funds for the highly popular Paycheck Protection Program (PPP) that had run out of funds. Last but not least, some buying activity from China in the agricultural markets was well-timed with rumors and media stories of China planning on topping-up its State Reserves with purchases of U.S. supplies. So far only a few pieces of buying have been in evidence, but the possibility of large Chinese buying was enough to scare some bearish elements out of the market.
EXPORT SALES
Exports sales were better than last week, but that isn’t saying much. Net new sales of Upland cotton totaled 15,700 bales for delivery in 2019/20 and 46,400 for delivery in 2020/21. The largest increases in the current season were Vietnam at 26,000 bales and Pakistan at 6,800. Mexico was the largest buyer for the upcoming marketing year at 16,000 bales. Shipments were weaker again this week. Pima and Upland combined shipments were just 273,300 bales. Despite the widespread rumors of China buying, the data has not yet shown up for cotton. Chinese traders made net new orders of just 4,600 bales for the week ending April 16. Many traders expect those figures to improve on next week’s report.
THE WEEK AHEAD
With the Chinese buying rumor floating in the market, most traders will be keenly waiting for evidence on next week’s Export Sales Report. Aside from that central piece of news, weather and the crop progress and condition reports will figure centrally as traders attempt to navigate the stormy waters of this headline-driven market.
IN THE WEEK AHEAD:
- Friday at 2:30 p.m. Central – Commitments of Traders
- Monday at 3:00 p.m. Central -Crop Progress Report
- Thursday at 7:30 a.m. Central – Export Sales Report
- Thursday at 2:30 p.m. Central – Cotton On-Call Report