April 14, 2022

• Super-Heated Inflation Roils Financial Markets
• Net Sales of Old Crop Still Positive
• Grim Outlook for Early-Season Rains
• First Notice Day is April 25

May futures shook off last week’s decline and rallied sharply for the first three days of this week. Prices even touched a fresh 11-year high at 146.14 cents per pound early in Thursday’s trading before coming back down to settle at 141.98 cents, up 878 points for the week ending April 14. Fresh highs, Index fund rolling and the expiry of May options on Thursday drove average daily trading volume to a multi-month high. Open interest, on the other hand, fell 9,501 contracts from five sessions ago, leaving 222,080 contracts. With May option expiry, open interest is likely to fall even further next week.

Outside Markets

Super-heated inflation continued to roil financial markets this week. The U.S. Consumer Price Index showed an annual increase of 8.5% on Monday, the highest in more than four decades. Despite real average earnings actually declining (via the impact of inflation), it increasingly appears as though the Federal Reserve will have to take more aggressive action by hiking interest rates in larger increments. Markets are now expecting the Fed to increase rates by half a point in both of their next two meetings.  Stock indices were flat to lower this week, but 10-year Treasury yields rallied back to pre-pandemic levels. Commodities are also continuing to rally as the crop prospects erode and the need for energy products continues despite the war in Ukraine and the continuing marginalization of Russian supplies. U.S. retail sales were still healthy in March, including for clothing and apparel where volumes do not yet appear to have been affected by inflation. 

Export Sales

More Chinese cancellations appeared on this report, but the net sales of old crop Upland was still positive at 59,300 bales. New crop sales were 132,000 bales. Combined shipments were 351,900 bales, which is slower than the average needed to hit the USDA’s current target, but not surprising given how volatile weekly shipments have been this year. Major buyers for the week included Turkey (27,100 bales), India (24,400), Indonesia (6,700), and Vietnam (6,200). It is notable that India was the second largest buyer for the week ending April 7, since a waiver of cotton import tariffs (usually 10%) until September 30 was announced this week. Traders will be interested to see whether Indian demand becomes a regular fixture of the next several Export Sales Reports as the Asian Subcontinent continues to deal with a shortage of readily available cotton. 

Weather and Crop

West Texas, Southwest Oklahoma (where the vast majority of Oklahoma cotton is grown), and Western Kansas were all left out of the storms that swept across the country this week. That isn’t entirely true. There was plenty of wind and dust. Unfortunately, there are no drought-busting rains in the forecast either. Although we’ve been hoping and praying that we could write something else for some time now, the outlook for early season rains is grim and the drought looks likely to continue. There is some chance that we could see some rains in this area toward the end of April, but the bias is still for below-average rainfall.

The Week Ahead

Next week is the last full week before first notice day (the 25) and all producer and mill price fixations must be completed. Cash traders will be busily cleaning out their May positions for that reason, and the normal weekly reports, which once again include the Crop Progress Report, will be the focal points. Any increased precipitation forecasts for the Southwest will likely also affect the market.

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