July 15, 2022

• Cotton Prices Down More Than Any Other Major Commodity
• U.S. Shippers Book Another 10,200 Bales of Sales
• Tuesday’s WASDE Report was a Bit of a Non-Event
• Shrinking Crop

Futures markets suffered another week of terrible losses. Despite a strong performance Friday following a strong jobs report, December futures fell from Monday through the rest of the week. Trading volumes grew as prices pushed lower and lower into Thursday’s close at 83.71 cents per pound, which was down 817 points for the week. Open interest has steadied somewhat, with new buyers now starting to match new sellers. The total number of open contracts was up 3,749 to 177,010.

Outside Markets

Cotton is currently leading the commodity pack in the wrong direction, with cotton prices down more than any other major commodity for the last month (-32%). Despite a tighter U.S. balance sheet on Tuesday’s WASDE report (more below), cotton continues its freefall as recession fears are hitting a fever pitch. This week’s negative macroeconomic data started with a plunge in the NFIB Small Business Optimism index and was followed by two days of hotter than expected Consumer Price Index (1.3% vs 1.1% expected) and Producer Price Index (1.1% vs 0.8% expected). The strong inflation data suggested that the Federal Reserve does not yet have inflation under control. After the announcement, the Federal Funds market immediately jumped to reflect a faster pace of rate hikes, which sequentially lead to a stronger U.S. Dollar (especially in the face of major problems in Europe), and in turn continued to pressure commodities. Stocks also traded lower as the Fed looks unlikely to make a dovish pivot before the July meeting.

Export Sales

Despite the July holiday, U.S. shippers were able to book another 10,200 bales of sales for the remainder of the 2021/2022 marketing year (ends July 31). Net new sales for 2022/2023 were 139,300 bales, and for 2023/2024 were 69,800 bales. Shipments were healthy at 312,700 upland and 4,400 bales of Pima. Although the shipments reported to the USDA so far are still far off pace to reach the projected 14.75 million statistical bales for this season, adjustments based on the customs bureau’s observed exports put U.S. exports on pace. However, given the small crop that is coming, the likelihood of around two million bales of carryover sales, and the 4.6 million bales merchants have already sold for next season, it looks as though the U.S. is about to start the 2022/2023 season with nearly half of its exportable surplus already committed to the export market.

WASDE

Tuesday’s WASDE report was a bit of a non-event as the market continues to be dominated by speculative movements based on macroeconomic factors, but it is worth keeping up with the movement on the balance sheet. Despite slightly higher acreage on the end of June Acreage report, the USDA cut U.S. 2022/2023 production by one million bales to 15.5 million on the basis of severe drought here in the Southwest. The USDA also cut expected exports 500,000 bales and cut ending stocks to 2.4 million from 2.9, providing a very tight outlook for U.S. cotton next year. The world balance sheet, on the other hand, was loosened by a few million bales as the USDA cut consumption in several countries for both this year and last year. Consumption seems to have slowed in the face of higher prices. Beginning stocks increased 1.09 million bales to 84.04 million, while global production fell 1.2 million to 120.07. Consumption also fell 1.62 million bales to 119.92. Net of all changes, the USDA’s world ending stocks expectations increased 1.49 million bales to 84.26 million, despite a tightening U.S. balance sheet.

The Week Ahead

A shrinking crop and few signs that demand for U.S. cotton has stopped leave the U.S. in a tight position. Traders will be watching the fundamental signals in the near term. Macroeconomic issues and the mood in the broader markets seem to matter a lot more right now, so a larger share of attention will fall there. Still, the weekly reports will get their fair share of scrutiny. Beyond hurricanes, weather is of decreasing interest with much of the crop already lost and the outlook unchanged for the next few weeks here in the Southwest.

• 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