By Jeff Thompson, Autauga Quality Cotton 

For the eighth time in as many months, cotton prices fell below 80 cents to rebound after finding firm support.   Hitting a low of 79.05  last week, new crop prices rallied slightly on Friday to close at 80.10 for a loss of 172 points on the week.  Old crop prices traded similarly, sliding to a low of 80.50 before bouncing back to close at 81.46, a loss of 258 points.  Given a host of positive influences, it was surprising to see these losses in direct contrast to the equity market’s biggest gains since March and grains up over ten percent.  With   July futures having only four trading sessions remaining before First Notice Day, December will soon officially become the cover month.   Thus, going forward our comments will solely focus on new crop prices. 

December futures now with a life of their own, will be greatly influenced by crop conditions, final planted acreage, and yield potential.  That’s not to say demand will be ignored.   Economic conditions and their impact on cotton consumption will be watched closely.   There are growing signs inflation may be cooling as the consumer price index (CPI) fell 0.1 percent from April to May. Year-over-year inflation slowed to four percent, the lowest twelve-month figure in over two years and well below April’s 4.9 percent while ever closer to the Fed’s two percent target.  As a result, following ten consecutive interest rate hikes the Fed chose to take a pause at their June meeting.  However, Chairman Powell in his post-meeting comments restated this was just a breather to gauge the impact of previous hikes while hinting two more interest rate bumps could be forthcoming before year’s end.  

Export sales were dismal this week, well below the previous four.   China’s reserve buying has been the catalyst for strong sales leading up to now.    A meager volume of sales to other countries is clear indication demand is weak.   Export sales of 99,000 bales were sixty-one percent below the four-week average. But be mindful, with seven weeks to go in the marketing year sales already exceed the thirteen million bale export estimate.  Shipments, on the other hand, at 244,800 bales, were fourteen percent below the four-week average and short of the 267,000 bales needed weekly to meet the export estimate. 

The past week saw a change in weather with the Midsouth and Southeast regions receiving much-needed rainfall.   However, in some areas it was excessive, accompanied by wind and hail.  While in the Southwest, drier warmer weather aided planting efforts.  Though the crop appears to be a couple of weeks late, the most recent conditions report as of June 12th, showed 81 percent of the crop has been planted versus a five-year average of 86 percent.  Worrisome, the portion of the crop rated good to excellent fell to 49 percent from last week’s 51 percent and all but matching last year’s 46 percent which included an almost nonexistent Texas crop.  In addition, that rated poor to very poor increased to 15 percent from last week’s 12 percent. But we caution, take these numbers with a grain of salt because it’s not known who is doing the rating and how familiar they might be with the crop.  Possibly the first tropical salvo of the year, a disturbance off the coast of Africa, is expected to move eastward into the central Atlantic Ocean having a 70 percent chance of becoming a tropical depression by mid-week. If it develops into a tropical storm, it will be named Bret. 

Where to from here? We look for new crop prices to remain range bound at least until the USDA plantings report is issued on June 30th. At that time, a more meaningful volume estimate will be made.  Currently, the market is trading off the USDA’s planting intentions number of 11.3 million acres, a decline of 22 percent from last year.  In some circles, there is talk of acres falling bullishly below 11 million.  Nevertheless, looking at things as they are today it’s safe to say the crop has the potential to be much bigger and demand shows little indication of improving.  A bearish combination for cotton prices, to say the least.-