March 4, 2022
- Effects Still to be Determined from the Conflict Between Russia and Ukraine
- Net-New Sales Second Most for this Week of Marketing Year
- Long-Range Forecasts Still Call for Drier and Warmer Bias Heading into Spring
Prices have whipsawed traders of all stripes this week. May futures bounced off last Friday’s low at 115.86 Cents per lb., rocketed to a high of 123.31 cents on Tuesday, and fell back toward 119 cents on Wednesday. In fact, the average trading range for the last five sessions was more than four cents wide, providing plenty of heartburn for all market participants. Nevertheless, May futures settled at 119.80 cents on Thursday, up just 64 points for the week. Open interest also managed to gain 510 contracts to hit 238,736, signaling that speculators have not yet decided to make an exodus from the cotton market.
Outside Markets
Sanctions, boycotts, and seizures against Russia’s banks, companies, politicians, and oligarchs have both shocked Russia and set the halls of finance to re-ordering the capital markets. It will likely take several more weeks, with escalatory pressure still expected, to sort out what investments are safe, what commodities will be in shortage, and what aspects of the economies of the World will be affected and how. We know at least that Russian oil, gas, metals, and grains are likely to be increasingly scarce, as is Ukrainian grain. Wheat prices surged to near all-time-highs and crude shot up to its highest since 2008. Even though rumors Iran may sign a new nuclear agreement with the U.S., leading to lifting of sanctions and allowing Iranian oil to be traded in the international market again took some of the momentum out of the oil market, commodity prices had one of their best weeks ever, despite a strong U.S. Dollar.
Export Sales
A holiday-shortened trading week, conflict in Ukraine, and an average closing price of 120.48 cents for the May futures contract could not diminish demand in the week ending February 24th. In fact, for this week of the marketing year, net new sales were the second-most on record. Shippers booked orders for 348,600 bales of Upland and 7,400 bales of Pima to 19 different markets. Orders for the 2022/2023 marketing year were 105,200 bales of Upland and 900 bales of Pima. Combined shipments were healthy at 365,100 bales, which is less than the average needed to hit the USDA’s target, but above average for this week of the year. With this week’s figures, export commitments are at 93% of the USDA’s full marketing year target for U.S. exports with five months left to go.
Weather and New Crop Outlook
Beyond some scattered showers, the moisture outlook for West Texas is not terribly encouraging. Drought conditions expanded slightly last week, and the long-range forecasts still call for a drier and warmer bias heading into the spring. Elsewhere in the cotton belt, rains will bring some relief to the dry parts of the Gulf states and to the Southeast. Unfortunately for cotton, better moisture isn’t the only factor at play in next year’s crop. The rally in the grain markets has many analysts wondering whether the recent planting surveys or the USDA’s recent Agricultural Outlook forum forecast for next year’s cotton acreage are still reliable. Cotton may not gain as many acres as expected with soybean, wheat, and corn prices rising so sharply, and given the production that must be replaced from Russia and Ukraine, it may be difficult for cotton to maintain crop share this season.
The Week Ahead
Outside markets and the economic implications of war are still rattling the fundamentals of all markets, and it would be naïve to think headlines won’t dominate trading for the near term. However, next week’s WASDE report will also have traders’ attention, as the market waits to see whether the USDA makes any major adjustments to their balance sheet. The report will be released on Wednesday the 9th, a day ahead of weekly export sales.
In the Week Ahead:
Friday at 2:30 p.m. Central – Commitments of Traders
Wednesday at 11:00 a.m. Central WASDE
Thursday at 7:30 a.m. Central – Export Sales Report
Thursday at 2:30 p.m. Central – Cotton-On-Call
