MAY 29, 2020
FUTURES PRICES REBOUNDED AFTER LONG WEEKEND, NOT ABLE TO HOLD GAINS
- Export Sales Report Released
- U.S. Cotton Crop More Than 50% Planted
- NOAA Predicts a 60% Chance of Above-Normal Hurricane Season
Futures fell to a low of 57.06 cents per pound last Friday before rebounding after the long holiday weekend. Prices surged Tuesday to 59.45 cents, the week’s high, but cotton prices just weren’t able to hold onto the gains. July futures finished the week at 57.57 cents, losing 49 points from last Thursday’s close. Despite low daily trading volumes, traders added 6,198 contracts to their positions, bringing total open interest back to 185,982, its highest level in six weeks. However, open interest continues to shift away from July to December as traders wind down their old crop positions. The trend is about to accelerate as Index Funds begin rolling their passive long positions forward over the next two weeks, which should also increase trading volumes sharply, albeit temporarily.
OUTSIDE MARKETS
Equity markets soared higher as markets re-opened after the long holiday weekend. Optimism has abounded on many fronts as western governments considered additional stimulus, coronavirus news focused on potential vaccines and some new Chinese purchases of U.S. agricultural goods came to light. The apparently successful re-opening of many cities, counties, and states also encouraged traders and investors who put their money back to work in the markets. Markets were so optimistic that they brushed off increasing U.S.-China tensions regarding China’s new security law that impedes Hong Kong’s autonomy.
EXPORT SALES
Export sales for the 2019/20 marketing year that ends on July 31 showed gross new sales of 111,000 bales, mainly to China (58,600 bales) and Vietnam (40,300). Unfortunately, the total quantity cancelled was 66,300 bales, which brought net new sales down to just 44,600 bales. Outside of China and Vietnam, sales were actually negative. Next marketing year sales (for shipment August 1 and after) were more encouraging. Eight countries made new orders and net sales totaled 171,900 bales, but the sales were still heavily concentrated in China, which accounted for 113,200 of the total. Shipments were just 267,400 bales last week, which disappointed traders since this level is below the average needed for the next 10 reports to hit the USDA’s 15 million bale exports forecast for 2019/20.
CROP PROGRESS AND WEATHER
More than half of U.S. cotton had been planted as of last Sunday, according to this week’s Crop Progress report, but the nation-wide average hides delays in the Mid-South and Southeast. While Texas has planted 50% vs a five-year average of 41% at this date, several other states are well behind normal. Tennessee had planted just 47% versus their five-year average of 74%. Missouri and Arkansas were similarly behind pace. Heavy rains in the Southeast have also slowed progress in the Carolinas. Unfortunately, next week’s forecast is too dry for Texas, Oklahoma, and Kansas but too wet for the Carolinas. Hopefully a slightly drier week will give growers in the north Delta area a chance to catch up.
THE WEEK AHEAD
Weather news continues to be a big focus for traders. NOAA’s Climate Prediction Center predicts a 60% chance of an above-normal hurricane season this year, which will have traders checking the National Hurricane Center’s website on a regular basis. Monday’s Crop Progress report will also be watched closely to see how planting progresses in these last few weeks of that season. Beyond the usual focal points (e.g. export sales), market participants will also be carefully minding their July positions as the lead contract winds down and Index Funds get busy moving their positions forward.
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