September 23, 2022

• The Fed Hiking Interest Rates Again Took up Headlines
• Traders Looking at the Normal New Sales, Shipments, and Cancellations
• Attention Turns Towards the Weather in the Gulf of Mexico

The bearish talks that have been heard over the past month finally reached a crossroads over the past week, with cotton prices declining from last Thursday’s close. December futures went into the weekend settling limit down, taking some traders off guard after the consolidation from the week before. The decline continued Monday and Tuesday with macroeconomic concerns pressuring the market. Weather was a major factor that drove prices back to limit up on Wednesday, but the rebound was short-lived. For the week ending Thursday, December futures settled at 96.54 cents, down 675 points. Total open interest increased by 4,523 contracts to 214,256, signaling speculators might be getting back into the market.

Outside Markets

The Fed hiking interest rates again took up the headlines for outside markets throughout the week. The Fed increased Interest rates 75 basis points on Wednesday, bringing the target rate to 3.25%. The anticipation of an increase, and the actual increase, sent outside markets tumbling. The Fed is now saying interest rates will increase by another 125 basis points by 2023. The U.S. is not the only country working to fight inflation. England, Norway, and Switzerland joined the U.S. by raising interest rates after the Fed’s announcement. Although this move was anticipated, the dollar hit 20-year highs on Wednesday and again on Thursday. Stocks, on the other hand, collapsed over the hawkish numbers released this week. The S&P 500 and Nasdaq were the lowest they’ve been since July and the Dow Jones Industrial Average fell to a 3-month low.

Export Sales

Now that the Export Sales Report is back on schedule, the release has traders looking at the normal new sales, shipments, and cancellations. The report ending September 15, showed net sales of 32,400 Upland bales and 300 Pima bales. Sales were a slight disappointment, but given the tight supply we have in the U.S., it also did not come as a complete surprise. The biggest buyer of Upland was Pakistan (27,800 bales) followed by El Salvador (8,600 bales). Given the decrease in production occurring in Pakistan, it is no surprise to see the country at the top of the sales list. Shipments are right on pace for this time of the year, with 232,300 Upland bales getting exported this week.

Crop Progress and Weather

Although the first day of fall officially started on Thursday, the weather conditions in West Texas still seem much like that of summer. It was hot and dry over the past week and the forecast is predicting little change for this area in the upcoming week, which provides ideal conditions for this stage of the growing season. To no surprise, crop conditions are lagging across the U.S. compared to usual and the impending weather in parts of the Cotton Belt could cause a decrease as well. Hurricane Fiona missed the Eastern coast of the U.S., but forecasts are currently monitoring a tropical disturbance that has a 90% chance of development according to the National Hurricane Center. The uncertainty of where this storm will fall is worrisome. If it hits in the Gulf of Mexico, there could be major issues for producers in the Southeast, due to the fact 58-91% of bolls are opened in the area right now.

The Week Ahead

Most of the Cotton Belt should be warm and dry this week, but attention will be on the Southeast as the development in the Atlantic has potential to become a hurricane. The already tight U.S. balance sheet would take another hit if the storm moves into the Gulf of Mexico next week. Otherwise, traders will continue monitoring crop conditions and exports sales as usual.

• 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