JULY 10, 2020

FUTURES PRICES CONTINUE LAST WEEK’S RALLY

• Export Sales Shipments Beat the Pace to Hit 2019/20 Target
• Crop Conditions Mixed Across Cotton Belt
• WASDE Report Released, Lowered World Ending Stocks
• Crop Progress and Export Sales Reports Focus Going Forward

Futures prices continued last week’s rally, which was sparked by the surprising cut to U.S. cotton plantings on the Acreage Report. December futures were able to touch their highest level since March 5 at 64.90 cents per pound before settling at 63.89 cents Thursday, up 94 points for the week. Daily trading volumes recovered from last week’s lows as new buyers continued to enter the market. Open interest gained 4,099 contracts to finish at 170,877 as of Wednesday’s close.

OUTSIDE MARKETS

U.S. stocks put in a mixed performance this week. While there is more talk of another coronavirus stimulus brewing, botched re-openings have put some cities back into varying degrees of lockdown. Economic activity has staggered and the failure of the stock market to resume its uptrend has more investor money flowing toward bonds. The yield on the 10-year treasury note fell to its lowest level in seven weeks. Crude oil prices have remained near $40/barrel and the value of the U.S. Dollar versus other major currencies weakened slightly.

EXPORT SALES

It was a bit of a change-up this week. Sales took their turn to disappoint while shipments took their turn to impress. Shipments beat the pace needed to hit the 15.0 million bale target for the outgoing 2019/2020 year, with 336,600 bales of Upland and Pima combined. Sales, on the other hand, were very low. Just 43,800 bales of upland cotton were sold for prompt delivery (before August 1), and 6,700 bales for the incoming marketing year. China, Vietnam, and Turkey were the only significant buyers.

CROP PROGRESS AND WEATHER

Crop conditions improved in the Mid-South and Southeast, but were more mixed in the Southwest. Hot, dry conditions continued to prevail in Texas and Oklahoma, although spotty rains brought relief to some lucky farmers. This week’s extreme heat is not helping and more deterioration in crop condition and yield prospects looks likely. Across the Cotton Belt, 47% of the crop is squaring and 13% are setting bolls.

WASDE

July’s WASDE update lowered world ending stocks, but there were fewer changes than many traders were expecting. The single largest revision was to the U.S. 2020/21 production forecast, which fell 2.0 million bales to 17.5 million. In line with the large supply cut, the U.S. export forecast for 2020/21 was lowered to 15.0 million, down one million bales from June. 2019/20 exports were also increased 200,000 bales, so 2020/21 beginning stocks declined to 7.1 million. In total, the USDA reduced expected ending stocks for 2020/21 by 1.2 million bales to 6.8 million. World figures were relatively unchanged. Ending stocks fell 1.9 million bales to 102.8 million, largely because of the fall in U.S. production. The lack of revisions to world consumption has some traders doubtful of the accuracy of this month’s report, but all will admit that 2020/21 remains deeply uncertain. 

THE WEEK AHEAD

This week’s rally provided some life to the market, which would otherwise be stuck in the slowness of summer. Traders will continue to watch the weather and Crop Progress and Condition Reports closely. Export sales will also be a focal point as traders continue to watch whether China keeps buying or demand manages to diversify.

IN THE WEEK AHEAD:

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