July 29, 2022

• Cotton Ended the Week Up 461 Points
• U.S. Economy Contracted for Second Consecutive Quarter
• Soil Moisture Depleting Across West Texas and Much of Cotton Belt

Despite ending in the red this past Friday, cotton rallied to finish the week ending July 28 on a strong note. Thursday closed at 96.21 cents per pound, up 461 points since last week, the highest close seen since the beginning of July. The total number of open contracts grew by 4,790 contracts to 184,989.

Outside Markets

Outside markets were mixed throughout the week due to the impending releases of key economic reports, but finished strong to end the week. The U.S. economy contracted for the second consecutive quarter since the pandemic began, with gross domestic product (GDP) falling at a -0.9% annualized decrease for the April through June period. Personal consumption expenditures increased at a pace of 1%, meaning consumers are still spending money, but at a slower pace than what was seen in the first quarter. This deceleration comes in part because of inflation increasing at such a fast pace including staples such as gas, food, and shelter rising in price. The Federal Open Market Committee met on Wednesday and interest rates increased to a range of 2.25-2.5%, a three-quarter percentage point hike. There are mixed emotions on determining whether we are in a recession yet – some say two quarters of economic contraction is when a recession officially begins, while the Fed is saying the increases in rates have slowed inflation and tampered recession fears for the time being. The U.S. dollar index was trending slightly higher towards the end of the week, recovering from the lows it had seen for the three weeks prior. However, it is still being weighed down from the weak economic and GDP data received earlier in the week.   

Export Sales

Despite new sales of 20,200 Upland bales, cancellations totaled 24,200 bales, making an overall net reduction of 4,000 Upland bales. The cancellations did not come as a surprise for the last week of the marketing year and created a marketing year low for net sales. The cancellations mainly came from Turkey (6,000 bales), China (2,900), and South Korea (1,600). For the 2022/23 crop year, net sales of 55,700 Upland bales were made, with the biggest buyer being Vietnam (26,000). Shipments slowed from the previous week, with 252,900 Upland bales getting shipped. There was no Pima cotton sold for the current marketing year but 4,900 bales were booked for the next marketing year. Shipments for Pima were also down from last week, with 3,200 bales shipped.

Weather and Crop Progress

Soil moisture deteriorated across West Texas and much of the U.S. Cotton Belt throughout the week. Despite receiving moisture in some areas, the rain did little to help the soils. The week ahead is expected to bring rain to some areas of the Cotton Belt, but with increasing soil evaporation rates, we will see what kind of relief these areas receive. West Texas is expected to be hotter and drier in the coming week, which seems to be the norm for this summer.

The Week Ahead

With the marketing year wrapping up and key macroeconomic reports behind us, the focus will remain on weather, Crop Progress and Condition Reports, and the Export Sales Report to see where shipments will land to end the marketing year.

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