April 1, 2022

• Commodities Continue to be Whipsawed by the Global Energy Markets
• Strong Demand for U.S. Cotton
• First Official USDA Planted Acreage Estimate of the Year

May futures prices surged Friday and Monday to consecutive, fresh life-of-contract highs. The lead contract was able to reach a high of 141.80 cents per lb. on Monday before resistance began to kick in. From there price action was extremely volatile and more two-sided. The lead contract flip-flopped higher and lower for the rest of the week, ultimately making its heaviest decline on Thursday. May cotton finished the week at 135.69 cents, up 479 points for the week. Trading volumes were relatively heavy throughout the week, and open interest fell sharply after Monday’s blow off. Short-covering was responsible for the price spike, as the total number of open contracts fell 2,509 contracts to 228,700.

Outside Markets

Stocks rallied for the first half of the week, as the sharp decline in bonds began to steady, but a decline in real personal consumption paired with a low initial jobless claims figure that leaves more room for the Fed to hike rates, threw cold water on the rally. Commodities continue to be whipsawed by the reordering of global energy markets. In addition to Moscow’s demand that its natural gas be purchased in Rubles, the crude oil markets were shocked lower by President Biden’s order to release much more oil from the U.S. Strategic Petroleum Reserves. High European inflation rates also complicated financial flows, with the likelihood of higher interest rates hitting foreign exchange markets. Lastly, the economic slowdown in China, largely driven by expanding lockdowns and climbing COVID case counts, also dimmed the outlook for global consumption. In short, the markets are likely to remain extremely volatile.

Export Sales

Once again, U.S. shippers found strong demand for U.S. cotton even as prices were rising last week. With May futures trading from 125 cents to 142 cents, shippers were able to book another 234,000 bales of Upland for delivery this year and 111,700 bales for deliver next year. While the numbers were very strong, the report does show much less breadth of demand than we have seen in recent weeks. To be specific, China accounted for over 75% of the old crop sales. That would not be so problematic if it were not the case that China is struggling with COVID lockdowns and stagnating domestic cotton prices that have failed to join in the global rally. Other destinations are faring better, but China’s struggles may be a fly in U.S. Exporters’ ointment. Prices may have finally found a point that buyers are not willing to chase, at least temporarily.

Prospective Planting and New Crop Outlook

There is not much to say about the weather this week (a few hundredths of an inch here, maybe a tenth there), but traders did get the first official USDA guess at planted acreage this week. The Prospective Planting report was released Thursday, showing that USDA’s survey-based reading showed a nine percent increase in cotton intentions versus last year’s actual plantings. Somewhat surprisingly, every state but Arizona showed higher cotton acres next year. The award for largest percent increase, not including Pima, goes to Louisiana, which will increase acres to 200,000, a whopping 82%. Texas showed the largest absolute increase, gaining 450,000 acres of Upland and 5,000 of Pima. Texas intends to grow 6.822 million acres of cotton this year. Nevertheless, given the drought in the Southwest, many analysts are looking for a smaller crop off of the larger plantings and many are expecting USDA’s first crop estimate in May to be 17 million bales or less.

The Week Ahead

And just that quickly we’ve come back to a focus on the next WASDE report. The April estimates will be released next Friday, April 8, at 11 AM, so we’ll also get one more Export Sales report before then. The largest of the Index funds will begin rolling next Thursday as well, so there is no lack of action expected in the week ahead. 

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
• Friday at 11:00 a.m. Central – April WASDE