July 9, 2021
- U.S. Treasury Yields Continue to Fall
- Export Sales Winding Down
- Squaring and Boll Setting Behind Average Pace
- WASDE Report Release Next Week
Although Independence Day shortened the trading week, the cotton market was not without a bit of its own fireworks. December futures prices rallied last Friday, but exploded higher to 88.89 cents per pound in overnight trading on Tuesday, which is the highest level that December futures have traded since late February. Despite the strong post-holiday opening, selling pressure re-surfaced during Monday’s trading and prices struggled to make any further advances. December futures finished Thursday at 86.88 cents, up 98 points for the week. Outside of Tuesday’s spike higher, trading volumes were light, but the total number of open contracts in the market rose 6,399 to 223,639.
Outside Markets
Confidence in the economic recovery seems to have waned this week. U.S. Treasury yields have continued to fall, with the 10-year note yield falling below 1.25% for the first time since mid-February. Although the market knows that the Federal Reserve is carrying on its massive quantitative easing plan for now, the lower yields have bred speculation that bets on a continued economic boom may be overdone. Initial jobless claims seemed to support the sentiment, with new claims beating expectation this week. The release of the Federal Reserve’s minutes from their last meeting also revealed that they were further along in discussion of slowing asset purchases than many had thought. Stocks reacted to the news with a selloff that gave back the week’s gains. New worries abroad about the delta variant of the coronavirus and the pace of re-opening had international markets down as well.
Export Sales
Sales of 2020/2021 cotton are winding down as the end of the marketing year on July 31st approaches. Only 52,100 bales of old crop for prompt shipment were sold last week. On the other hand, sales of the 2021/2022 crop seem to be picking up speed. Shippers sold 177,000 bales for delivery in the next marketing year, with demand distributed across 15 markets. Pakistan continued to be the largest buyer in both the current and next marketing year with 23,400 bales for 2020/2021 and 58,500 bales for 2021/2022 booked last week. Shipments have also continued at an impressive rate, keeping up hopes that U.S. exports will hit the USDA’s current 16.4 million bale target.
Crop Progress and Weather
Crop conditions were largely unchanged this week. The share of the crop in “Good” or “Excellent” condition held steady at 52 percent. Squaring and Boll Setting are slightly behind their average paces, but not as much as one would expect given the significant weather delays seen in many parts of the Cotton Belt this year. Southwestern producers are in a generally good mood, too, thanks to recent rains and cooler than average temperatures that have kept highs below 100. Unfortunately, South Texas will continue to receive flooding rains on already saturated soils over the next few days, and the impact of the constant rainfall is not yet clear. Rainfall will also cover most of the Mid-South, but the Southeast should have a chance to dry out after this week’s visitation from Tropical Storm Elsa.
The Week Ahead
While next week’s Crop Progress and Condition and Export Sales reports will get their usual levels of attention, traders are more fixated on the upcoming WASDE report, which will update the USDA’s crop estimate for 2021/2022 with last week’s Acreage Report data. The report is even more anticipated than usual as traders are having difficulty squaring the improved conditions in Texas with the lower planted acreage on last week’s report.
IN THE WEEK AHEAD:
- Friday at 2:30 p.m. Central – Commitments of Traders
- Monday at 11:00 a.m. Central – WASDE
- Monday at 3:00 p.m. Central – Crop Progress and Condition
- Thursday at 7:30 a.m. Central – Export Sales Report
- Thursday at 2:30 p.m. Central – Cotton-On-Call