April 29, 2022

• U.S. Economy Contracted for the First Time Since the Pandemic
• Possible Indian Export Ban on Cotton
• Limited Chances of West Texas Breaking Away from Drought

Focus has officially shifted to the July contract. July futures whipped around for the week ending April 28. Trading started down early in the week before rallying sharply, with July futures hitting the allotted five-cent limit before close on Wednesday. Cotton limits were then expanded to seven cents per pound Thursday and proceeded to achieve that limit before closing. July futures settled at 147.68 cents, which was a new contract high up 979 points for the week. The total number of open contracts fell by 2,729 contracts to 204,045 contracts for the week.

Outside Markets

The stock market had a rough couple of days to start this week but finished strong with one of the better daily returns seen in months. The U.S. economy contracted for the first time since the pandemic began, with gross domestic product (GDP) falling at a 1.4% annualized rate in the first quarter. This is due to a handful of factors including a trade gap and a decrease in government spending. Consumer spending remained strong throughout the first quarter. Although the contraction came as a surprise, it will be highly unlikely the Federal Reserve will change its stance on increasing interest rates when meeting next week. This has not reduced demand in commodity markets such as corn, which also set new highs this past week.

Export Sales

For the week ending April 21, 121,100 Upland bales were sold, which is the highest amount of current crop sales seen in four weeks. China was back in the game this week as the biggest buyer with 61,400 Upland bales followed by Vietnam (25,300), India (12,700), Pakistan (11,600), and Turkey (4,700). 49,500 bales of 2022/23 crop were sold, which is right around average for this time of the year. Shipments were the third highest we have seen this marketing year, with 386,000 Upland bales getting shipped. It was refreshing to see an increased number of shipments, but this number is still below the approximate 402,000 bales needed to ship per week to meet USDA’s export estimate.

Domestic cotton prices in India have impacted the textile industry the past year. In addition to waiving tariffs on imported cotton, India is now looking to ban exports to help curb the price of cotton within the country. Because shipments are hard to get into India before September and prices have not eased as anticipated, the ban on exports could free up cotton on the domestic side and help prices stabilize. At the current price level of cotton, significant sales may be hard to achieve.  

Weather and Crop

Weather forecasts are, once again, not optimistic for chances of precipitation in the coming week. Recent models have shown that there is a very limited chance of West Texas breaking away from the current drought situation. Parts of the Southern High Plains and Panhandle of Texas have shown higher soil degradation than usual. Scattered storms will be seen throughout the week but nothing substantial is predicted for the Texas Plains. The eastern side of the Cotton Belt, however, has seen substantial rainfall and will continue to see rain as storm systems progress throughout the region. Hotter than average temperatures are something the Cotton Belt as a whole will see as spring advances.

The Week Ahead

The Indian export ban on cotton, the war in Ukraine, Covid restrictions in China, and impending weather all contributed to the sudden increase in prices and will be watched closely in the upcoming week. As usual, the Export Sales Report will continue to be a central focus for traders to find a price level that will ration demand.

In the Week Ahead:

• Friday at 2:30 p.m. Central – Commitments of Traders
• Monday at 3:00 p.m. Central – Crop Progress and Condition
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton-On-Call