March 25, 2022

• Impacts of Russian and Ukraine Conflict Become More Clear
• The U.S. Continues to be the Dominant Source of Cotton
• No Major Weather Relief Expected for High Plains Until Mid-Summer

Prices jumped to fresh new highs this week, continuing last week’s rally. Upward momentum took the May contract to 132.96 cents per pound on Wednesday. Prices did not hold at that level but were still able to settle at 130.90 cents on Thursday, which was up 904 points for the week. Trading volumes were healthy, but not particularly high given the new price ranges. Open interest surged as buyers rushed to enter the market. The total number of open contracts increased 10,599 to 231,209.

Outside Markets

With the financial and commodity impacts of Russia’s invasion of Ukraine becoming clearer and the Federal Reserve’s rate hike path begun, financial markets enjoyed some renewed confidence this week. For the time being, the U.S. economy still seems to be on good footing. For instance, last week’s initial jobless claims were the lowest since 1969. Yes, 1969. At the same time, there are clouds on the economic horizon. Bond prices have fallen sharply and there are signs of demand destruction in the energy sector from soaring gas prices. Home sales for February were also disappointing as mortgage rates continue to rise, but only slightly. Although there are some cracks in the veneer of strong economic growth, the current situation still trumps potential slowdowns. Major indices finished Thursday at or near their highest levels since before the Russian invasion began. 

Export Sales

Demand has remained robust despite high prices. As the last major source of available cotton (i.e. the residual supplier), the U.S. continues to be the dominant origin for the world’s importing mills. For the week through March 17, U.S. shippers sold 307,500 bales of Upland and 3,000 bales of Pima, with another 67,400 bales of Upland for next season. Combined shipments also rallied to a season high of 448,500 bales, thanks to 80,600 bales of cotton previously shipped but reported late to the USDA. With logistical difficulties as they are this season, there may be more late reporting to come. In any case, the U.S. has now sold over 100% of the USDA’s current export target, with 19 weeks left in the marketing year. The tough part now is completing shipments, which are not yet halfway there.

Weather and New Crop Outlook

While the Gulf states were drenched by the storms that began in this region and swept to the East, most of this territory did not benefit. Western Kansas and Southwestern Oklahoma had patchy coverage, as did much of the Texas panhandle. Unfortunately, most of the High Plains missed out altogether, and there is no improvement in the seasonal drought outlook. We can only hope there will be a break in the pattern soon, but no major relief is expected until mid-Summer.

The Week Ahead

Next week will be an anchor point for forward-looking traders as the USDA is set to release the Prospective Plantings report next Thursday, March 31. The report is a pivotal point because it will inform the USDA’s production forecast for the May and June WASDE reports.

In the Week Ahead:

• Friday at 2:30 p.m. Central – Commitments of Traders
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton-On-Call