June 11, 2021
- May Consumer Price Index Higher Than Expected
- Export Sales Slightly Lower Than in Recent Weeks
- WASDE Report Uneventful
- West Texas Planting Delayed by Rain
With the exception of Monday’s trading, cotton futures marched steadily higher this week. Both July and December futures settled near their highs. July rallied 315 points to settle at 87.36 cents per pound, and December futures gained 317 points to finish the week at 88.21 cents, which also happens to be the highest settlement ever for the December 2021 contract. Volume was strong throughout the week as traders continued shifting positions from the July to December and forward months. Open interest fell 2,044 contracts for the week to 228,342.
Outside Markets
Stock markets remained at or near recent highs. The S&P 500 Index was even able to make a fresh all-time high this week. The week’s most anticipated data point was the May Consumer Price Index, which came in slightly higher than expected. Year-over-year, prices are 5% higher, which is the highest reading since 2008. Despite running hot, the structure of the increases that underly the index implied that inflation was transitory as the Federal Reserve has been stressing. For example, one third of the May price increase was driven by surging used car and truck prices, where many expect supply disruptions to be temporary. The market interpreted the data to mean there will be less pressure for the Federal Reserve to start hiking rates, which sent yields on government bonds to their lowest level in more than 3 months.
Export Sales
Export sales were slightly lower than in recent weeks, but reflected a normal seasonal slowdown as summer arrives. Shippers made net new sales of 108,200 bales of Upland cotton for 2020/2021 and 21,400 for 2021/2022. Combined shipments of Upland and Pima continued to show strength at 275,100 bales, which gave the USDA plenty of room to increase its export estimate on this month’s WASDE report.
WASDE
This month’s WASDE report was relatively uneventful, but there were several small changes that are worth mentioning. On the U.S. balance sheet, neither production nor consumption were revised, but exports were increased 150,000 bales to 16.4 million in the 2020/2021 marketing year and 100,000 to 14.8 million in the 2021/2022 marketing year. Higher U.S. exports were supported by lower foreign production and the highest consumption forecast in a few years. On top of that, China’s production was cut by 750,000 bales to 26.75 million while expected use was lifted by one million bales to 41 million. The production deficit led the USDA to increase China’s imports by 500,000 bales to 11 million. Use and imports were revised up in Bangladesh and Turkey as well. All in all, the revisions reflected a great demand outlook that will leave the United States with just 2.9 million bales of projected ending stock at the end of next year.
Crop Progress and Weather
Not surprisingly, this week’s Crop Progress and Condition report showed that Texas is 12 percentage points behind the average planting pace as growers in much of West Texas were delayed by rain-soaked fields. Squaring is also a bit behind pace as much of the early crop in South Texas and Louisiana were under fairly constant rain and cloud cover. Some clearer skies and heat should help to speed things along in West Texas this week. The Mid-South has unfortunately become a major watch point. Heavy rains have caused flooding in the Mississippi Delta, impacting crops, property, and livelihoods.
The Week Ahead
With the WASDE behind us and options expired, next week’s focus will fall on finishing out remaining July on-call positions and return to monitoring crops and weather. Export sales reports are still a key watchpoint, as sales for next marketing year are significantly behind recent years’ pace.
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
