July 7, 2023
- Stocks Wavered from Mixed Economic Data
- U.S. Export Sales Solid for the Week Ending June 29
- Scattered Storms Provided Relief to a Dry Crop
After trading in the lower 80s all week, December futures dipped back below 80 to finish the holiday shortened trading week. The Acreage Report came in as expected, with planted acres decreasing slightly overall in the U.S. The market traded higher on the news and showed continued strength after the weekend, reaching the highest level since early June. After the July 4th holiday, questions of demand in China, macroeconomic data, and scattered storms received in West Texas seemed to weigh on prices. The macro flow continued to pressure prices on Thursday as well. For the week ending July 6, December futures settled at 79.88 cents per pound, up 85 points for the week, despite the pressure present late in the week. Total open interest decreased 3,658 contracts, bringing the total to 171,873.
Outside Markets
Stocks wavered this week with the release of mixed economic data. The core personal consumption expenditure (PCE), which is one of the Fed’s main gauges for inflation, rose less than expected. The 0.3% increase month over month and 4.6% year over year showed signs that inflation eased slightly in May and that it is slowly moving in the right direction. Data has recently been mixed where inflation is concerned, which could be an indicator that the Fed may resume interest rate hikes in the July meeting. The labor market continues to be resilient. The U.S. added 497,000 jobs to private payrolls in June, the biggest increase since February 2022 and far exceeding expectations. The Institute for Supply Management (ISM) service index rose more than expected for June, creating additional pressure for markets. The Dollar reached a 3-week high during the week, adding pressure to commodities in general, but eventually fell back on Thursday to post moderate losses. Crude oil had a good rally this week when news of lower global production hit the market. Next week, the June reading of the Consumer Price Index (CPI) will be released. This is another measure of inflation that the Fed will use to determine whether to increase interest rates at the next Federal Open Markets Committee Meeting (FOMC) at the end of the month.
Export Sales
U.S. export sales were solid for the week ending June 29. A net total of 109,200 Upland bales were sold for the 2022/23 crop year, and 130,400 bales for the 2023/24 crop year. This made for a combined total of 239,600 Upland bales, which is a respectable number of sales for this point in the marketing year. The biggest buyer for the 2022/23 marketing year was China, booking a total of 61,700 bales, followed by Mexico with 33,100 bales, Vietnam with 13,200 bales, Japan 2,300 bales, and Indonesia with 2,000 bales. Cancellations were slightly more noticeable, with a total of 43,400 bales cancelled. It appears, however, that many of those cancellations were rolled to the next marketing year. A total of 260,100 bales were shipped for the week, which is behind the pace needed to reach the current USDA export estimate. A net total of 3,700 Pima bales were sold for the 2022/23 marketing year and 900 bales were sold for the 2023/24 crop year. Shipments of Pima totaled 4,200 bales, down significantly from the week prior.
Weather and Crop Progress
The past week held a mix of heat and scattered storms that popped up throughout Texas, Oklahoma, and Kansas. The rains received in West Texas, Oklahoma, and Kansas helped bring relief to a dry crop. South Texas has been hot and humid the past week. Fair weather is forecast in the coming week, which will help as harvest is set to begin soon in the southernmost cotton growing areas in the state. This week’s Crop Progress and Condition report showed that Squaring and Boll Setting have caught up to average paces, after weeks of being behind from weather. The condition of the crop deteriorated slightly. For the country, 6% of the crop is rated as “Excellent”, 41% as “Good”, 31% as “Fair”, 14% as “Poor”, and 7% as “Very Poor”.
The Week Ahead
Next week marks a big week for the cotton market from both a fundamental and macroeconomic perspective. Nothing matters more for cotton fundamentals than the release of the World Agricultural Supply and Demand Estimates on Wednesday, July 12. Outside markets will still play a dominant role, especially with the release of June’s CPI reading. Otherwise, the Crop Progress and Condition and Export Sales Reports will continue to be focal points where supply and demand is concerned.
- Friday at 2:30 p.m. Central – Commitments of Traders
- Monday at 3:00 p.m. Central – Crop Progress and Condition Report
- Wednesday at 11:00 a.m. Central – WASDE Report
- Thursday at 7:30 a.m. Central – Export Sales Report
- Thursday at 2:30 p.m. Central – Cotton On-Call