December 23, 2021

• Economic Outlook Turns Higher
• Merchants Struggle with Logistic Problems
• Outside Markets Key Watch Point

Futures prices fell from last week’s high on Friday, gapping lower to 109.40 cents per pound on the open and continuing downward from there. The decline continued on Monday, giving back all of the prior week’s gains and making a fresh two-week low at 104.27 cents. Thankfully, March futures were able to find support below 105 and spent the rest of the week moving higher, in sympathy with the broader markets. Although prices traded in a range that was over five cents wide, trading volumes were light. And despite all the action, March futures settled just 56 points lower for the week at 109.12. Open interest appears to be stabilizing for now. In aggregate, traders closed 310 contracts, bring total open interest to 232,268.

Outside Markets

The majority of price action in cotton and most commodities seems to have been driven by the large “risk off” and “risk on” swings in outside markets. Stocks moved sharply lower on Friday and Monday, on renewed fears over the Omicron variant and Senator Manchin’s rejection of the Build Back Better Act. The decreased odds of large government spending from the failure of the plan and risk of further lockdowns from Covid outbreaks put investors in a sharply pessimistic mood. However, strong consumer confidence, U.S. GDP, and personal consumption data pushed the market back into a buying mood on Tuesday. Data suggesting that the Omicron variant may also be somewhat less lethal than Delta also helped. With the economic outlook turning higher, a rising tide of reinvestment lifted all ships, including commodities.

Export Sales

In the week ending December 16, U.S. export commitments increased by 243,900 bales of Upland cotton and 6,500 bales of Pima. The largest buyers included China (68,700 bales), Vietnam (32,700), Turkey (29,000), Pakistan (23,500), and Mexico (22,800 for this marketing year and 42,900 for next). Although sales continue to be healthy, the rate of shipments is still floundering as merchants struggle with the same logistics problems that are plaguing all industries right now. Just 131,100 bales of Upland and 4,500 bales of Pima were exported. The slow shipments are causing concern among cash traders that the U.S. may not be able to actually move the current 15.5 million bale USDA forecast, although there is little doubt that all the cotton will be committed by the end of the season.   

The Week Ahead

Outside markets will continue to be a key watch point until cash market activity picks up again after the holidays. Traders will keep watching the export sales reports, and merchants will be fighting to execute their sales through the fog of the current logistics situation.

We wish all our readers a Merry Christmas!

In the Week Ahead:

• Monday at 2:30 p.m. Central – Delayed Commitments of Traders Report
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton-On-Call