MAY 21, 2021

WEEK BRINGS VOLATILE, TWO-SIDED MARKET

• Futures Prices Whipped Higher and Lower This Week
• Stock Market is in “Risk Off” Mode
• Export Sales Improve
• Planting Across Cotton Belt Behind Average Pace

In the week since last Thursday’s close and our last report, futures prices whipped both higher and lower in a volatile, two-sided market. Friday’s action continued Thursday’s sharp selloff. Prices managed to bump up a little on Monday and Tuesday, but the market was not able to hold the gains. On Thursday, July plunged to the low for the week at 81.50 cents per pound and settled at 81.53 cents, down 345 points since last Thursday’s close. December futures, which now have a higher level of open interest than July, performed significantly better. December futures were down just 131 points for the week, settling at 81.99. July’s relative weakness has put the spread between July and December futures into “carry” (i.e. the nearby contract at a discount to the deferred contract) for the first time in 13 months. Daily trading volumes were modestly more active than last week and total open interest fell 6,864 contracts to 222,915.

OUTSIDE MARKETS

Stock market performance was mixed this week. Markets seemed to be in a “risk off” mode on Tuesday ahead of the Federal Reserve minutes release on Wednesday. The minutes, which are a delayed release of the Federal Open Market Committee meeting minutes from April, gave traders a better feel for the Federal Reserve’s thinking about the future. While the minutes were from before the release of the surprising CPI figures last week, some committee members acknowledged that further “rapid progress” in economic recovery just might warrant a conversation about decreasing the Fed’s asset purchasing program (i.e. slowing down the printing presses). While many are glad to see a bit of acknowledgment from the Fed that too much money is flowing into the system, the side-effect on the markets will likely be a return on the “good news is bad news” dynamic that markets exhibited the last time the Fed attempted to enter a rate-hiking cycle. In other words, good economic data may increase investors’ expectations that interest rates will rise, encouraging traders and investors to close higher-leverage and riskier positions such as tech stocks and commodity futures.

EXPORT SALES

Export sales were better for the week ending May 13. Net new sales of Upland were 108,000 bales for the rest of 2020/21 and 21,800 for 2021/22. Pima sales were 8,200 bales, and combined Pima and Upland shipments were 353,100 bales. Accumulated exports continue to set records for the reporting week of the marketing year. U.S. export commitments are 16.6 million statistical bales (converting totals to 480-pound bale weights) versus the USDA’s 16.25 million forecast. When considering normal carryover sales, the USDA’s current export estimate looks comfortably within reach.

CROP PROGRESS AND WEATHER

Cotton planting across the Cotton Belt has fallen slightly behind the average pace with 38 percent of expected acres planted while the average pace is 40 percent. Mid-South states were generally behind pace as heavy rains had hindered planting in the week up last Sunday when data were gathered. At that point Texas, Oklahoma and Kansas were a bit ahead of average pace, but this week’s weather may have hindered some progress. Timely planting rains showered most of the territory in varying degrees. In some regions the rainfall is just enough to get started and more will be needed soon, but in luckier areas the totals were even enough to increase confidence in producing a crop. Unfortunately for South Texas and Louisiana, the rains have been a bit too much of a good thing, with most of Texas’ upper coast getting more than eight inches of rain in the past few weeks. Cooler temperatures and flooded fields may have already taken some of that production out of play.

The weather setup for the next week looks quite similar to this week, with less severe storms in Texas. A high-pressure system has parked over the east coast, making the eastern states hotter and dryer than usual. The clockwise rotation around that high-pressure system is what continues to bring moisture off the Gulf of Mexico into Texas and the Mid-South. While the moisture is welcome, Texas and Louisiana are likely to continue having the lower-than-normal temperatures that have frustrated planting and crop development in the early stages. Compounding Louisiana’s problems, most of the lower Mid-South also has to contend with flood risk as rains are likely to continue.

THE WEEK AHEAD

The Export Sales Report and Monday’s Crop Progress are the central reports for the week ahead. Any excess trader attention is likely to fall on weather forecasts and the broader commodity markets.

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