July 29, 2022
- Stocks Have Extended Last Week’s Gains
- Downstream Demand Caught in Headlights of Recession
- National Production Expectations Continue to Slip
After an attempt to continue the rally on Friday that posted a 97.65 cents per pound high, December futures fell sharply on Monday. Prices found a low at 91.60 cents on Wednesday before bouncing back into the 93 to 96 cent range where they spent the rest of the week. The lead contract finished the week at 94.62, down 159 points for the week. Daily trading volumes were very low, but traders still managed to add 3,097 contracts to bring total open interest to 188,086.
Outside Markets
Stocks have extended last week’s gains as a mixture of better-than-expected economic data and glimmers of easing prices persuaded many investors that the Federal Reserve could achieve a soft-landing or would not need to continue raising rates sooner than previously expected. However, several Federal Reserve officials made public appearances to clarify that last week’s comment from Chairman Powell did not indicate any intention to pivot from their hawkish stance any time soon. The comments led to a selloff in Treasuries that pushed the 10-year yield higher, but yields resumed their decline as investors have become comfortable with bonds again. The U.S. Dollar Index has largely followed yields lower, which reduces at least one headwind for U.S. exports, but the entire commodity space is still oscillating between tight supply and fears that recession will hit consumer demand.
Export Sales
This week’s Export Sales Report was further evidence that downstream demand is caught in the headlights of recession, particularly in China and Vietnam. Thanks to large cancellations in both of those countries, last week saw net reductions of 112,400 bales for old crop commitments. Although Vietnam’s cancelled 2021/2022 sales were offset by new crop orders of 40,400 bales, China’s 99,000 bale cancellation was not. New crop sales totaled 71,400 bales of Upland and 4,500 bales of Pima, and shipments were relatively strong for the week of the year. Looking forward, the export sales are likely to be lower than usual, perhaps until harvest. On one hand, mills hesitate to cover needs as they deal with uncertainty downstream. On the other hand, merchants have already committed a record high percentage of their smaller crop expectation, which has most shippers offering extremely high prices if they will offer at all. Without the big supply to sell, Export Sales is likely to be a less reliable barometer of demand for the next few months. A continuation of reductions as reported this week would certainly be bearish, but a lack of new sales doesn’t signal much in the short run.
Crop and Weather Update
There were significant rains across the upper half of the Texas panhandle, the panhandle of Oklahoma, and through Kansas cotton areas early this week. It was too late to help much dryland in the Texas portion of that area, but the rains will help irrigated yield in Texas and provide a helpful boost to the Kansas crop, which is already the healthiest in the region. Portions of the Mid-South got much needed rain, too. Overall, the Southeast remains the only region with a healthy dryland crop, and national production expectations continue to slip. The USDA’s current 15.5 million bale estimate looks farther and farther out of reach.
The Week Ahead
Summer doldrums are at their full strength. Traders are mostly on vacation and waiting for the next marketing year to get into swing over the next few months. The only major news expected next week will be Friday’s WASDE report, which coincides with the first NASS production estimate for this season and the first look at certified acreage from the FSA.
- Friday at 2:30 p.m. Central – Commitments of Traders
- 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
- Friday at 11:00 a.m. Central- WASDE and Crop Production
- Friday at 12:00 noon Central- FSA Acreage Report