September 16, 2022

• Erratic Week for Outside Markets
• WASDE Report showed 1.26 Million Bale Increase
• Three Export Sales Reports Released
• Spotty Storms and Warmer Temperatures in the Southwest

December futures had a volatile week from implications caused by fundamental and macroeconomic factors. Cotton stayed firm on Friday with modest gains on the close to head into the weekend. The much-anticipated WASDE release on Monday (more below) sent the market into a wide trading range before finally settling higher. The bearish WASDE Report coincided with macroeconomic data that shot prices back down to almost the lows seen over the summer and triple digit losses finished the day. Wednesday was a relatively quiet day after traders had time to digest the reports from earlier in the week and prepared for the much-anticipated Export Sales Report to be released after a four-week pause. The December contract fell under pressure upon the release of the Export Sales Report but eventually recovered and closed at 103.23, down just 55 points from the previous week. Total open interest amounted to 209,733 contracts, a decrease of 1,484 for the week and showing that exiting longs were again responsible for the selloff.

Outside Markets

Like commodities, outside markets had an erratic week following the release of the Consumer Price Index (CPI). Although there were hopes that inflation had peaked, the CPI was higher than predicted at 8.3% year-over-year. Retail sales also unexpectedly rose by 0.3% month-over-month. Additionally, initial jobless claims came in at 213,000, which was better than expected. An interest rate increase of at least three-quarters of a percentage point is now expected after the Fed meets next week. The dollar saw support after the economic reports, and was trending higher throughout the week. Domestic supply chain issues were a major concern weighing on markets this week as well. Railroad workers threatened to strike if labor agreements could not be met. A tentative deal was reached Thursday, averting what could have been a devastating event on the economy.

WASDE

The WASDE, for the second month, surprised the cotton world upon the release of the report on Monday. After the rise in FSA acreage in August, traders were wondering how USDA would incorporate the increase. The September report showed a production increase of 1.26 million bales, bringing the crop up from 12.57 to 13.83 million bales. In turn, this increase also brought exports up 600,000 bales to 12.6 million bales and ending stocks up 900,000 bales to 2.70 million bales. Although ending stocks improved, supply in the U.S. is still the tightest it has been in years. The September Crop Production Report released by NASS showed the biggest increases in production came from Texas and Arkansas. Compared to the August report, Texas is now at 3.2 million bales versus 2.9 million bales, and Arkansas at 1.6 million bales, up from the 1.22 million bales forecasted before. World production increased 1.44 million bales to 118.45, stemming mainly from the increase in U.S. production. Pakistan’s production was cut from 6.2 to 5.5 million bales, showing the devastating floods were acknowledged. World consumption was lowered to 118.63 million bales from the 119.09 million bales predicted before.

Export Sales

The much-anticipated Export Sales Report was released after a month-long hiatus. Three reports were released this week: a combination of August 18 and 25, September 1, and September 8. The last report we saw was on August 11 and from the four weeks of missed reports, total sales rose around 589,000 bales. For the week ending September 8, net sales of 100,300 Upland bales and shipments of 141,000 bales were reported. The biggest buyer this week was Pakistan, who booked 77,900 bales. This proves what was expected: Pakistan’s production has decreased substantially and there is a need to meet demand within the country. Net sales of Pima came in at 1,000 bales with 1,300 bales getting shipped over the week.  

Crop Progress and Weather

Over the past week, spotty storms and warmer temperatures occurred throughout the Southwest. The week ahead is forecasting normal conditions for this time of the year, which means little precipitation and warmer temperatures will be present. The Southeast saw moderate rain in some areas, and heavy downpour in others over the weekend. However, warmer and drier conditions are predicted in the seven-day forecast, which hopefully means harvest will proceed without any interruption. Long-range models are also predicting a “triple-dip” of La Niña. This will bring a continuation of the unusually dry conditions we have been seeing since September of 2020 when it first began. Tropical storm Fiona has formed in the Atlantic Ocean. As of right now it is set to go over Puerto Rico and the Virgin Island, with no indication it is headed towards the eastern U.S.

The Week Ahead

Between the excitement of the WASDE and broader macroeconomic news, the week ahead looks pretty dull in comparison. Trader’s will resume normal activity of monitoring crop conditions on Monday, weather forecasts, and Thursday’s Export Sales Report.  

• 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