December 9, 2022

• Recession Woes Weighed on Outside Markets
• U.S. Crop Raised to 14.24 Million Bales
• Weak Export Demand

March cotton futures had another erratic week, which seems to be the norm these days. Prices were choppy, often opening one way, seeing triple digit moves, before finally finishing slightly higher or vice versa. While fundamentals were in the back of trader’s minds most of the week due to the WASDE release, outside markets were the primary factor on the inconsistent shifts that were present each day. Cotton saw two days of upward finishes before fundamentals finally took over and ended the week with triple digit losses. For the week ending December 8, March futures closed at 80.85 cents per pound, down 400 points for the week. Total open interest rose 688 contracts to finish the week at 195,464.

Outside Markets

Recession woes weighed on outside markets once again. After feeling a bit of relief last week, stocks were lower based off continuing news of recession fears. China’s news of easing Covid restrictions helped boost outside and commodity markets some, but could not outweigh the fear of inflation. The U.S. dollar reached its lowest level in 3.5 months early in the week and continued to stay in that range for the remainder of the week. Initial jobless claims of 230,000 were reported, which came in as expected, and shows a labor market that is still tight but is on its way to softening. The Federal Open Market Committee meets next week, increasing possibilities that markets could be unstable in the week to come. News of the interest rate is highly anticipated, with many expecting a half of a percentage point rise compared to the steep three-quarters of a percentage hikes that have been common recently. The Consumer Price Index (CPI) and release of Retail Sales will be important data traders will be monitoring in the week to come.  As a reminder, October CPI was reported at 7.7% year-over-year and Retail Sales rose 1.3%. Strong numbers next week would show that the economy is not slowing as fast as hoped.

WASDE

We don’t usually mention any action on Friday, but with the release of the WASDE report today we felt it is important for readers to see what was reported. The WASDE came as a bearish surprise to many traders. The U.S. crop was raised to 14.24 million bales, up 210,000 bales from what was reported in November. Exports were lowered 250,000 bales to 12.25 million bales. Ending stocks were raised 500,000 bales to 3.5 million bales. Finally, Southwest production was unchanged at 3.685 million bales. Texas stayed the same at 3.3 million bales, Kansas at 175,000 bales, and Oklahoma stayed the same at 210,000 bales.

Foreign production saw a decrease of 700,000 bales to 115.73 million bales. The biggest change in production was seen in Pakistan, where production was cut 800,000 bales to 3.7 million bales. Consumption was reported at 111.70 million bales, a decrease of 3.25 million bales, showing weaker demand.

Export Sales

The U.S. Export Sales Report held no surprises, which is not necessarily a good sign for demand. For the week ending December 1, there was a meager 32,600 Upland bales booked for the 2022/23 crop year and 26,400 bales for the 2023/24 marketing year. China purchased 11,000 of those bales, followed by Bangladesh with 7,300 bales, and Turkey with 6,500 bales. Shipments were once again weak, with only 141,100 Upland bales getting shipped, lagging the current pace needed to reach the current export expectation. While Pima sales for the 2022/23 crop year were similar to last week’s, with 1,400 bales being sold, there was an increase in shipments, with 6,900 bales getting exported.

The Week Ahead

With fresh WASDE numbers in hand, traders will shift their focus back to macroeconomic news. Next week will be a big week for markets with FOMC meeting for the final time this year to see where interest rates will be going into the new year. Last week was also the final week of crop progress, so while that will no longer be something traders can see, the usual Export Sales and the daily classing report 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