MARCH 1, 2019
FUTURES FALL BUT REBOUND, TRADING VOLUME LIGHT
- Turning Attention to 2019 Production, Will Weather Complicate Potential?
- Trade Uncertainty Hinders Decisions
- Export Sales Cancellations Reported, but Shipments Strong
- Resolution to Trade Dispute May Be Near
May futures prices fell from 73.81 cents per pound Monday morning to a low of 71.90 cents Wednesday, then moved back up to 73.90 cents at today’s close. Trading volumes were down by nearly half this week, but the open interest climbed 5,556 contracts to 222,149 since last Friday. Trading activity stayed within last Friday’s price range for the entire week, which demonstrates how the uncertainty of the U.S.-China trade dispute continues to hang over this market.
PRODUCTION POTENTIAL FOR 2019, EARLY WEATHER QUESTIONABLE
Other than a few gins in Texas, Oklahoma and Kansas, ginning is rapidly approaching an end for the season. The crop seems to be coming in a bit lighter than USDA’s February prediction of 18.39 million bales but not by much. Attention already is turning toward the next crop in many traders’ minds. USDA’s initial U.S. production forecast of 22.5 million bales is still the most visible estimate in the market and serves as the baseline for analysts’ thoughts about future production. However, excessive rain and flooding in the Mid-South and Southeast and excessive dryness and drought development in West Texas are complicating the picture.
CAUTION PREVAILS
Mills are in the same boat as speculators for now, trying not to overcommit before the U.S. and China resolve trade differences (or not). Thursday’s Export Sales report showed healthy new sales of 199,500 Upland bales, but large cancellations mostly from China and Vietnam reduced the net sales figure to just 85,500 bales. Shipments were very healthy at 345,700 bales. U.S. commitments to the export market are at 85 percent of USDA’s 15.0 million-bale forecast, but shipments must remain high through the rest of the year for actual exports to meet the mark.
SOME TRADE NEGOTIATION DETAILS EMERGE
As we have already mentioned, financial markets continue to hold their breath waiting for a resolution to the trade dispute. Positive signs continue to build up as new information about which agricultural commodities will be included in China’s attempts to close the trade deficit, and administration officials make public comments about major breakthroughs on the issues of currency manipulation and deal enforcement. The WTO added to U.S. leverage in negotiations by siding with the United States in its suit against China’s grain production supports, which were in violation of its agreed maximum limits. Secretary Mnuchin noted the additional detail that a lengthy, preliminary draft of the agreement has already been produced. The deal may be signed in mid- to late-March at President Trump’s Mar-a-Lago estate, but as the President displayed in his negotiations with North Korea this week, he still retains the right to walk away if he believes the deal is insufficient.
WAITING FOR ANNOUNCEMENTS AND REPORTS
It is difficult to overstate the importance of the U.S.-China trade dispute. Traders of all kinds will find it difficult to stake too big a position in any direction without first seeing whether there is a deal. While they wait, traders will be closely watching the last few “catch-up” reports from the CFTC and next week’s Export Sales report, particularly the pace of shipments. Nevertheless, it is unlikely that any other information will take traders out of their wait-and-see mode before the trade dispute is settled.
IN THE WEEK AHEAD:
- Monday- Cotton On-Call as of February 22
- Tuesday at 2:30 p.m. Central Time – Commitments of Traders as of February 26
- Thursday at 7:30 a.m. Central Time – Export Sales report
- Thursday at 2:30 p.m. Central Time – Cotton On-Call as of March 1
- Friday at 2:30 p.m. Central Time – Commitments of Traders as of March 5