July 21, 2023

• The Dow Reached a 15-Month High on Strong Second Quarter Earnings
• U.S. Export Sales for the Week Ending July 13 Provided Market with Support
• Excessively Hot Temperatures and Dry Weather Still Present Over the Southwest

Cotton futures settled higher for four consecutive trading sessions this week, with the December contract settling at its highest level in over two months. The cotton market found support from positive outside market data, deteriorating crop conditions in Texas, and news that China will start selling cotton out of the Reserve at the end of the month. For the week ending July 20, December futures settled at 84.31 cents per pound, up 263 points. Volume was heavier this week, and total open interest increased 4,160 contracts to 182,144.

Outside Markets

Macroeconomic data continues to send mixed signals where inflation is concerned, however, outside markets were positive for most of the week. Second quarter earnings were reported, pushing the Dow to a 15-month high, but caused the NASDAQ and S&P 500 to slump. Although retail sales came in slightly below expectations, it still increased for the third straight month. Bank earnings reported in the second quarter also offered investors a bit of reassurance after the failures and losses that occurred in the first quarter. Much of this news has helped bolster optimism for the U.S. economy. The Federal Open Markets Committee (FOMC) meets on July 25 and 26 next week. Most traders have already been pricing in what they think will be the last 25-basis point rate increase for the year. Russia attacked a major grain terminal in Ukraine early this week, pushing grain and wheat prices up amid supply uncertainties. After tumbling last week, the U.S. Dollar found support when U.S. jobless claims reached a two-month low.

Export Sales

The U.S. Export Sales Report for the week ending July 13 held better news compared to the week prior. The market found support from the moderate sales and shipments that were reported. With only two weeks left in the 2022/23 crop year, a respectable net total of 67,100 Upland bales were booked. Demand for new crop continues to struggle and a net total of 86,100 bales were booked for the 2023/24 crop year. Shipments were up compared to last week, but the 233,100 bales exported still lags the pace needed to reach the USDA export estimate. Pima sales and shipments were comparable to the week before. A net total of 4,900 bales were sold for the 2022/23 crop year and 900 bales were sold for the 2023/24 crop year. Shipments were up for the week, with a total of 2,400 bales exported.

Weather and Crop Progress

Excessively hot temperatures and dry weather have been persistent throughout the week in parts of Texas, Oklahoma, and Kansas. The hot, dry temperatures and minimal precipitation are forecast to continue in the coming week. This week’s Crop Progress and Condition Report showed that the heat stress has started to weigh on the overall condition of the Texas crop. For the country, 7% of the crop is rated as “Excellent”, 38% as “Good”, 27% as “Fair”, 16% as “Poor”, and 12% as “Very Poor”. As of July 16, 64% of the U.S. cotton crop is squaring and 25% setting bolls.

The Week Ahead

Next week will be another relatively quiet week where cotton news is concerned. Traders will continue to monitor the weather forecast, Export Sales report, and the Crop Progress and Condition report. Macroeconomic data will likely have a greater impact with the FOMC rate decision early next week.

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