JULY 31, 2020

EXPORTS HEALTHY AS MORE WEATHER THREATENS 2020 CROP

• U.S. Dollar Index Falls to Lowest Level in More Than Two Years
• Export Sales Report Showed Improved New Sales, Healthy Shipments
• Hurricane Hanna Crop Damage in Southern Tip of Texas

Cotton prices dove Friday, falling sharply to 59.51 cents per pound as U.S.-China tensions escalated and a few weeks of poor export sales took their toll on the market. Nevertheless, prices rallied back Monday, and then continued to move higher through Wednesday and Thursday. December futures finish the week at 63.18 cents, up 126 points for the week. Daily trading volumes were heaviest Friday and Monday, but returned to recent low levels mid-week. Open interest decreased 3,933 contracts to 173,982. 

OUTSIDE MARKETS

Stocks moved lower as economic harm from second quarter lockdowns came into focus, and the activity suppressing effect of the continuing caseload burdened the market. Second quarter GDP was down 32.9% (annualized), which was less than the average expected from surveyed economists, but was still a shocking figure. Continuing jobless claims also disappointed the market, with 17 million people still unemployed versus 16.2 million expected. Failure of Congress to act quickly in negotiating more aid, including heightened jobless benefits, also pressured the market lower. Commodities, at least, had some positive news in the form of a weaker U.S. Dollar. The Federal Reserve re-committed to low rates and supportive policy in this week’s meeting, which keeps the supply of U.S. Dollars up and sent the value of the U.S. Dollar down versus major competitors. The U.S. Dollar Index fell to its lowest level in more than two years. A cheaper U.S. Dollar makes U.S. exports more competitive.

EXPORT SALES

For the week ending July 23, U.S. export sales improved to 118,700 bales of net new sales, with 9,500 bales for the 2020/21 marketing year (starting August 1), as well. The biggest buyers were Vietnam (76,600 bales, including bales switched from other markets) and China (22,000), which returned sales to a familiar pattern. 9,100 bales of Pima sold, too. Shipments were also a healthier 320,800 bales of Upland and 7,800 bales of Pima. There are just eight days of reporting left in the 2019/20 marketing year. Although sales have been quite slow in recent weeks, the U.S. is poised to begin the year with a relatively high share of its expected supply already committed.

CROP PROGRESS AND WEATHER

Crop conditions improved again this week, with much of the West Texas and Oklahoma getting localized showers. Unfortunately, the southern tip of Texas suffered larger-than-expected damage from Hurricane Hanna last weekend. The full scale of the damage is still not known, and it will take some more time to assess. Tropical Storm Isaias now threatens southeast states, too, and may bring more rain than wanted to the drier cotton areas in Georgia and South Carolina. The current forecast has the potential for flooding rains that could damage the eastern crop.

THE WEEK AHEAD

Traders will be watching the incoming hurricane and the general weather pattern closely. Hopefully the storm’s track will veer to the east. Whether or not the U.S. government is able to finalize the next round of coronavirus aid is also a watchpoint. Lastly, as always, the market will be closely watching next week’s Export Sales Report to gauge world demand for U.S. cotton.

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