August 26, 2022

• Equity Markets Gave Back Last Week’s Gains
• USDA New Export Reporting System Error
• More Rain to Hit the Southeastern Crop

Despite some sharp intra-day moves, prices were constrained to last week’s trading range, with the majority of the action constrained between 112 and 117 cents per pound. The high of the week was Tuesday at 117.45 cents and the low was 111.01 last Friday. Despite some shocking news from an erroneous Export Sales Report, trading volumes declined through Thursday. Even so, open interest has continued to move higher. Traders added 10,400 contracts in the last five sessions, bringing the total number of open contracts to 207,904, which is the highest level of participation since early June.

Outside Markets

Inflation expectations picked up a bit this week, which pushed commodity markets up. Equity markets, on the other hand, gave back some of last week’s gains. Investors are continuously re-assessing whether and when the Fed will pivot from its hawkish path of rate hikes, and the data continues to suggest the Fed has more room to keep moving rates higher. Housing is the only major sector registering declines so far as personal consumption has continued to hum along and there is no sign of unemployment increasing in the labor data. Although GDP was reported to decline 0.6% on Thursday, the recession is not consumer led, which has many pundits expecting something mild. Markets also took the announcement of the administration’s student loan forgiveness plan in stride, despite the inflationary effect many economists expect it to have. That the Federal Reserve needs to continue increasing interest rates is fairly clear, but investors will be attempting to decipher whether housing weakness will pull the economy into a deep recession or labor market strength will help achieve the “soft landing”.

Export Sales

The release of this week’s Export Report was retracted by USDA. The information released initially was not accurate. What caused the problem? This is the first week that the USDA collected and disseminated agricultural export data through a new reporting system. Apparently, as is often the case on rollout, going live revealed the system’s errors and shortcomings. We hope the corrected information will be available soon. 

Crop Progress and Weather

The past week’s dry-wet divide was more of a North-South phenomenon than the East-West one that we have seen more frequently. Rains drenched a huge area. The Western end of the band dumped up to five inches on some portions of the panhandle, and the rain total only got heavier as you move eastward. Portions of Dallas were flooded by 10 inches or more, and the Southern Delta crop was inundated, too. More rain will hit the Southeastern cotton crop in the next several days and there are increasing worries about boll rot and loss of yield in the face of the excessive rainfall. All this just as hurricane season is ramping up. In any case, we have learned never to turn down a rain here in the Southwest, but we do hope that flooding and excessively cool weather will not hurt yields over in our sister states.

The Week Ahead

Macroeconomics is still key for cotton traders, especially as the market continues to await brands and retailers in setting new orders for next season with the world’s mills. Keep an eye out for the revised export sales data as well, but we don’t expect any remedy for that until next week at the earliest. Lastly, the market will be keeping a close watch on tropical storm activity as hurricane season continues to ramp up.

• 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