OCTOBER 30, 2020

COVID, WEATHER, AND POLITICS IMPACT MARKET

• Economic Disruptions from COVID-19
• Export Sales Surprisingly Strong
• Hurricane and Storm Fronts Impact U.S. Crop
• U.S. Presidential Election Next Week

December futures prices made fresh multi-month highs Monday, Tuesday, and Wednesday, but that did not keep cotton prices from crashing on Wednesday with the rest of the commodity markets. After touching the week’s high at 72.63 cents per pound, December futures turned sharply lower. Prices erased seven sessions of gains over the course of a few hours. Thankfully, prices stabilized on Thursday, but still lost a little more ground. December futures settled at 69.82 cents, down 212 points for the week. Trading volumes were relatively high, especially Wednesday as prices broke. The open interest continued to rally all week. Traders have added 6,662 contracts to their open positions, which puts current open interest at 249,451.

OUTSIDE MARKETS

This week was tough. Not only has it become clear to all that no additional coronavirus stimulus will be forthcoming before next week’s election, but the markets were also forced to reckon with economic disruptions from COVID-19. In the U.S., the daily number of new cases surged past the July record. At the same time, both France and Germany have returned to national lockdowns to control their surging caseloads. Major stock indices had some of their worst daily losses in months through Wednesday, but steadied after solid economic data from the U.S. on Thursday morning. New jobless claims were below expectations at 732,000 (not seasonally adjusted), while continuing claims decreased 662,000 to 7,422,000 (not seasonally adjusted). U.S. third quarter GDP also beat expectations at 33.1% (31% expected), rallying from a second quarter decline of 31%. The “risk-off” attitude in the market seems likely to persist through next week’s election.

EXPORT SALES

Export sales were surprisingly strong. Last week U.S. shippers sold 397,400 bales of Upland cotton but cancelled 108,700 sales as well. The result was net new sales totaling 288,700 bales, with the largest increases to Pakistan (125,900 bales), China (81,400), Mexico (41,600), Egypt (26,400), and Vietnam (25,800). Pima sales were also very strong at 32,700 bales. Sixteen destinations were net buyers, which is a welcome expansion in market breadth. Combined shipments continue to be healthy at 244,700 bales. Shipments since August 1 have reached 3.07 million bales versus 2.30 million at this point last year, leaving the U.S. ahead of the necessary pace to hit the current USDA export target.

WEATHER

It has not been a good week for the crop. Yet another hurricane is hitting Louisiana and showering the Southeast at the same time that storm fronts stretching from West Texas across the North Delta have frozen and drenched the rest of the unharvested crop. Here in the Southwest, freezing rain covered unharvested cotton plants in a layer of ice. The event is relatively unprecedented, it is difficult to say how much yield and quality may have been lost. We are at least thankful that harvest is ahead of pace for Texas at 48% versus a five-year average of 34%. A lot of sunshine and low windspeeds would be helpful to limit any quality losses, both here in the southwest and in the east.

THE WEEK AHEAD

Next week’s general election will soak up a lot of traders’ attention. While it is not clear at all how any policy that would affect cotton will change, many traders will be concerned about how the outcome will affect broader markets and speculators’ risk appetites.

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