JUNE 29, 2018
FUTURES TRADING VOLUME DROPS, PRICES FALL
- Although Traders’ Attention Turns to December, the Contract Lost 1.38 Cents per Pound This Week
- Crop Conditions Improve, But Will They Hold?
- Export Sales Cancellations Appear, Likely to Continue
- USDA Acreage Report Surprises Some
- S. Tariffs on Chinese Goods to Begin July 6
Futures market trading volumes dropped sharply this week, averaging around 15,000 contracts per day. July futures are practically finished (open interest has fallen to 221 contracts), and traders have turned their attention to December futures which meandered lower from a high of 86.22 cents per pound on Monday to a low of 83.35 Friday. December’s open interest also had declined, down 3,332 contracts from 184,858 to 181,526 as of Thursday’s close.
TEXAS CROP SHOWS SOME MINOR IMPROVEMENT
Monday’s Crop Progress and Condition report showed Southwest cotton in better shape, but hot and dry weather forecasts have tempered expectations. The share of Texas cotton rated very poor or poor declined nine percentage points to just 30 percent, but the good and excellent categories rose only three percentage points, combined. Oklahoma showed greater improvement with the good or excellent share rising 22 percentage points to 45 percent. The gains are welcome, but the forecast implies the Southwest crop may not hold onto gains.
SALES CANCELLATIONS BY CHINA LESS THAN EXPECTED
This week’s export sales report covered the week ended June 21, which was the first week after the U.S.-China trade dispute re-ignited. Chinese sales cancellation were lower than traders expected, and 2017-18 Upland cotton sales were indeed reduced, but by just 18,900 bales. Next marketing year sales increased 196,200 bales despite 50,200 bales of cancelled orders from China. China’s large volume of outstanding sales could mean more cancellations on the way, but this week’s report highlights that there are many other homes for U.S. cotton, even if China cancels more sales.
ACREAGE REPORT SHOWS INCREASES FOR TEXAS AND OKLAHOMA
The USDA Acreage report was the news highlight for the week, released on Friday at 11:00 a.m. Central Time. The report is significant because it updates the planted acreage estimates that USDA will use in the July Production report. Analysts had expected an upward revision from 13.47 million acres to 13.70 million. Texas planted acreage was increased 100,000 to 7.4 million acres and Oklahoma was increased 40,000 to 720,000 acres. Nevertheless, every other region showed decreases, leaving the national estimate just 49,000 acres higher overall.
Futures were already moving higher when USDA released the Acreage report. A smaller-than-expected increase in cotton acreage jolted prices higher as traders erased expected bales from their forecasts. Unfortunately, the market did not hold onto gains for long, topping out at 85.86 cents before quickly returning to the lows. Settling at 83.92, December futures were down 1.38 cents per pound for the week.
TARIFFS SET TO START NEXT FRIDAY
The first week of July is usually calm, with traders on vacation and enjoying Independence Day with their families and friends. This year probably would be the same except that, on next Friday July 6, U.S. tariffs on Chinese goods are scheduled to begin. Both escalation and resolution to the trade dispute could add more volatility to the market, keeping traders on their toes. While trade-related risks will get more than their fair share of attention, Monday’s Crop Progress and Friday’s holiday-delayed Export Sales reports will still be the center of focus. Meanwhile, 2018-19 production prospects and how U.S. export sales will perform without China are the important open questions.
IN THE WEEK AHEAD:
- Crop Progress will be released Monday at 3:00 p.m. Central Time.
- The Export Sales report will be released Friday at 7:30 a.m. Central Time.
- The CFTC Cotton On-Call report to be released Thursday at 2:30 p.m. Central Time.
- The CFTC’s Commitments-of-Traders will be released Friday at 2:30 p.m. Central Time.