JULY 26, 2019

FUTURES PRICES RISE TO HIGHEST LEVEL IN ALMOST THREE WEEKS

• Crop Progress Improves
• Strong Export Sales Report
• USDA Releases MFP Details
• Trade Negotiations on Tap
• Federal Reserve Set to Meet

Market participation was fairly low this week, but several rounds of positive news seemed to help buyers more than sellers. Cotton traded in a sideways to higher pattern. December futures prices crept 147 points higher from last Friday to settle at 64.54 cents per pound, which is the highest settlement price in almost three weeks. Volumes have been fairly light in recent trading, and open interest is up just 1,167 contracts to 196,588.

CROP PROGRESS AND CONDITIONS

As a positive for producers, Monday’s Crop Progress and Condition report showed a large degree of catching up accomplished last week. Cotton squaring bolted 18 points higher to 78 percent, just 2 points behind the five-year average pace. Boll setting was reported at 33 percent, just 4 points off the norm. The crop is less behind than it was, and the condition has continued to improve as well. In fact, the share of U.S. cotton rated “Good” or “Excellent” has had six weeks of consecutive improvement. At 60 percent, the total is the highest in several years at this point in July. With enough heat units and a long enough Fall, this crop has plenty of upside potential.

EXPORT SALES AND SHIPMENTS

Producers also could be glad for strong demand this week. In the week ended July 18, U.S. cotton shippers booked net new sales of 163,000 Upland bales for immediate shipment and 208,000 for shipment next year. While the total sales were very strong, purchases were heavily concentrated to Vietnam, which was responsible for more than 60 percent of the total. The next largest buyer was India, at 35,900 bales total. Relatively few countries were buyers, and volume was fairly low. Shipments were good, considering the time of year, but the total reported was still less than needed to hit USDA’s current projection for U.S. exports in 2018-19.

CHINESE PURCHASES?

Last week there were rumors of Chinese buying, and those rumors were transformed to public announcements in traders’ news feeds early this week. If reporters’ estimates hold true, 200,000 bales or more of sales to Chinese companies may appear on next week’s Export Sales report. Unfortunately, the strong sales may not last. The Chinese government seems to have issued limited tariff exemptions to certain importers of agricultural goods. Cotton was not the only product to receive limited exemptions (soybeans reportedly had two to three million tons exempted), and many commentators are of the opinion that the dispensation was a direct response to the U.S. loosening restriction on business dealings with the controversial Chinese tech giant Huawei. Further progress in negotiations may be necessary for China’s buying to continue.

MARKET FACILITATION PROGRAM ANNOUNCEMENT

Producers got another welcome piece of news from USDA’s release of 2019 Market Facilitation Program details. USDA apparently has acknowledged the tremendous downturn in cotton prices caused by the trade frictions because cotton heavy counties were slated for the highest per acre payments. Indeed, cotton prices are 30 cents per pound off their peak. The support is very welcome and will help cotton farmers stay afloat, but the hope remains for open and free markets in the near future. Details of the Market Facilitation Program can be found at https://www.farmers.gov/manage/mfp.

TRADE TALKS AND FED MEETING

There is plenty to look forward to in the week ahead. There will be face-to-face trade negotiations between the U.S. and China on Monday and Tuesday, and traders also will be looking for any change of direction at the Federal Reserve on Wednesday. The Fed has a tough job to do as it navigates mixed results in recent economic reports. On Friday, the government reported U.S. economic growth of 2.1 percent in the second quarter, down from 3.1 percent in the first quarter. Jobless claims have been relatively low, but business investment and home purchasing have been lackluster. All markets will be keenly watching for whether the Fed moves forward with expected rate cuts or keeps things unchanged. Aside from these key events, traders will, of course, be keeping an eye on Monday’s Crop Progress report and Thursday’s Export Sales report.

IN THE WEEK AHEAD:

• 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 2:30 p.m. Central – Commitments of Traders