September 30, 2022

• Dollar Reaches 20-Year High
• Export Sales Lowest on Record for This Week of Marketing Year
• Hurricane Ian Rainfall a Concern for Southeast Cotton

Futures markets were under pressure and suffered a week of big losses. Cotton prices went limit down heading into the weekend and little relief was seen throughout the week. Despite wide trading ranges most days, December futures finished positive only one day this week. Otherwise, futures had one of the biggest percentage drops in a week for the year, just under 12%, and touched some of the lowest prices observed in several months. December futures finished the week at 85.16 cents per pound, down 1,138 points from last week. Macroeconomic factors, weaker exports, and the fear of weakening demand kept prices low this week. Total open interest increased by 6,537 contracts to 220,793, the highest level seen since mid-April.

Outside Markets

Outside markets struggled, much like commodity markets did this week. Global recession fears once again led this week’s poor macroeconomic data. Stocks continued to tumble this week, with the S&P 500, NASDAQ, and Dow Jones Industrial Average hitting their lowest levels of 2022 on Thursday. On Wednesday, the dollar reached a 20-year high, keeping pressure on commodities. Initial jobless claims fell to their lowest level in five months, coming in at 193,000. The stronger labor numbers give the Fed continuing reason to keep increasing interest rates. The U.S. Gross Domestic Product (GDP) was also released for Q2 and kept unrevised at -0.6%, keeping it in negative territory for the year.

Export Sales

The Export Sales Report reflected the uncertainty of the current market. Net sales for the week ending September 22, were at 30,200 Upland bales and 1,200 Pima bales. The total amount of sales is the lowest on record for this week of the marketing year. The 2023/24 marketing year saw total sales of 42,365, which is higher than what is typically sold at this time. Combined sales showed the disappointing, but not surprising, number of 72,673 bales. The biggest buyers of Upland were Pakistan (32,400 bales), Nicaragua (8,800), and Taiwan (5,300). Cancellations were also apparent on this report, with a total reduction of 21,700. These mainly came from Turkey (12,600 bales) and El Salvador (5,000).

Crop Progress and Weather

Weather conditions throughout Texas, Oklahoma, and Kansas will see little change within the next week. Dry, warm conditions are predicted throughout most of the Cotton Belt, providing ideal conditions for the areas beginning to harvest. The main headline concerning weather this week was where and when Hurricane Ian was going to make landfall. Ian made landfall on Florida’s Gulf coast and continued across the state. It is predicted to move back into the Atlantic before making landfall again at South Carolina and Georgia’s coast. Much of the excessive rainfall from this storm will stay over the Carolinas and eastern Georgia. From a crop perspective, the major concern last week was how this hurricane might impact the cotton in the Southeast. Heavy rains are predicted in the Carolinas and Virginia, which is unwelcome on the open crop, with quantity and quality losses expected. However, the rest of the Southeastern crop seems to be spared and should fare better.

The Week Ahead

There was not much good news to report this week, so hopefully next week will provide a bit of reprieve. Macroeconomics is still key for cotton traders, as the mood in broader markets seem to matter a lot more right now. Besides that, weather conditions and the Export Sales Report will continue to provide insight as to what demand looks like 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 and Condition
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton On-Call