December 2, 2022

• Outside Markets Were Mixed
• Disappointing Export Sales Continue
• U.S. is 84% Harvested

After the holiday-shortened market that was present this past week, cotton prices saw another week of wide trading ranges. The holiday delayed Export Sales Report revealed substantial net reductions, keeping the market down going into the weekend. With that report still in mind and worries about increasing Covid restrictions in China, March futures went back down to the 70-cent range on Monday. Macroeconomic worries eased later in the week and cotton took a turn to close limit up on Wednesday. Thursday was another day of wide trading ranges with fundamental and outside market influence keeping prices up and down. For the week ending December 1, March futures closed at 84.85 cents per pound, up 195 points from the week prior. Total open interest increased 2,829 contracts to end the week at 194,776.

Outside Markets

Equity markets had a mixed week but overall felt relief compared to what has been happening recently. Stocks were under pressure early in the week from Covid-related news out of China, but market sentiment improved once it was realized Covid restrictions were going to ease. Additional dovish comments from the Fed chair were heard on Wednesday, which helped push stocks higher. The October Personal Consumption Expenditure Price (PCE) Core Deflator, which is a measure of inflation, came in below expectations at 0.2% month-over-month and 6.0% year-over-year. This report was a good sign that the Fed could slow interest rate hikes. Although easing Covid restrictions and the PCE Deflator were bullish news for markets, bearish news followed right behind. Consumer spending rose to 0.8% in October, up from the 0.6% reported in September. Initial jobless claims also proved the labor market is showing continuing strength, falling 16,000 claims to 225,000. The Fed will be taking this data into account at the next meeting in a couple of weeks, and there are still high expectations that the interest rate hike will only be half of a percentage point this time. The dollar was under pressure this week as well, closing at the lowest level since August. Higher crude prices and an averted railroad strike also helped boost markets.

Export Sales

Since the Export Sales Report was delayed last week due to the Thanksgiving holiday, it should be noted that last week’s report was the worst of the marketing year with overall net reductions of 116,000 Upland bales. For the week ending November 24, the report was still dismal, with much of the disappointing numbers stemming from continued demand concerns. Net sales for the 2022/23 crop year came in at a meager 16,500 Upland bales and 11,000 bales for the 2023/24 year. Shipments were also behind the pace needed to reach USDA export expectations of 12.5 million bales, with only 139,500 bales getting shipped for the week. Pima sales for 2022/23 totaled 1,800 bales and 1,300 bales were shipped. 

Crop Progress and Weather

Although West Texas did not receive the snow that was forecasted, widespread rain still fell throughout the region over the past weekend. The moisture received, which is always welcomed, did impede harvest. The coming week will bring wide changes in temperatures as a cold front moves in over the weekend. After the cold front moves out, mild weather and open skies are expected, which should help producers complete harvest. Harvest is still progressing along above average, with 84% of the cotton crop having been harvested already. For the Southwest, Texas is 77% harvested, Oklahoma is 84%, and Kansas is 91%, meaning the 2022 harvest is slowly starting to come to an end.

The Week Ahead

Fundamentally, nothing matters more for cotton next week than the release of the WASDE on Friday. All eyes will be on U.S. production, as has been usual with each release this marketing year. Barring any surprises, traders will continue monitoring outside markets, seeing as how they have been a big mover of commodity markets lately. The Export Sales, Crop Progress, and daily classing reports will continue to be a point of focus.

• 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
• Friday at 11:00 a.m. Central – WASDE and Crop Production