JULY 19, 2019

FUTURES ENDED THE WEEK ON A POSITIVE NOTE

• Weather Expected to be Conducive to Crop Development
• Export Sales Report Showed Signs of Life in Cotton Market
• Macroeconomic and Political Uncertainty Overshadows Market

Cotton futures seemed to be changing their tune on Monday as prices rallied back to 64.09 cents per pound. Unfortunately, prices resumed the prior week’s downward trend, reaching a new life-of-contract low for the December 2019 contract at 61.66 cents. Thankfully, prices rallied on Friday and recouped the week’s losses. December ended the week at 63.07 cents, up 39 points from last week. Daily trading volume was lower than last week, but open interest has continued to rise. At 195,421, open interest is up 5,786 contracts in the past five sessions and is at its highest in a month.

IMPROVING CROP CONDITIONS, CROP STILL BEHIND AVERAGE PACE

Improving crop conditions appear to be one of the factors emboldening sellers. Monday’s Crop Progress and Condition Report showed a slightly improved share of the crop to be rated “Good or Excellent”. However, the cotton crop is still pretty far behind schedule. Nationwide, only 60 percent of the crop was squaring versus the average pace of 69 percent, and versus the average pace of 25 percent setting bolls, only 20 percent is this year. Weather is largely expected to be conducive to crop development over the next several days, so there is still time for the crop to catch up. The Southwest is expected to have high levels of evaporation that will dry out the area over the next few days, but heat is expected to give way to more seasonable temperatures next week. South Texas and the Southeast should receive some timely rains.

EXPORT SALES REPORT RELEASED

Thursday’s Export Sale Report showed signs of life in the cotton market. New orders were not at record levels, but the reappearance of mill buying generated some relief. Cotton shippers booked new export orders of 54,000 Upland bales for shipment in the last few weeks of the 2018/19 marketing year (ending July 31) and 218,900 bales for shipment next marketing year. Shipments were still somewhat disappointing. Only 310,300 Upland bales and 11,400 Pima bales were reported as shipped, which is significantly less than the average that traders expected to see in order to hit the USDA’s 14.5 million bales export estimate for 2018/19.

MACROECONOMIC AND POLITICAL ISSUES

There are still plenty of major macroeconomic and political issues confounding traders’ expectations lately. On one hand markets expect the Federal Reserve to cut interest rates at the end of the month, but on the other hand stock market indices have made record highs. Economic data has been mixed, but the current reshuffling of international trade has removed meaning from the signals that traders once relied on. Even China-U.S. trade dispute news has become noise. There are rumors that Chinese firms have begun to make small purchases of U.S. agricultural goods, perhaps as good-faith gestures to keep negotiations going, but markets seem to have become fairly numb to such information.

FOCUS ON EXPORT SALES DATA AND CROP CONDITIONS

For the most part, summer has settled onto the cotton market. International traders may be busy shepherding their existing higher-priced sales to completion and booking new commitments, but most U.S. cotton buyers have little to do but guess how big the crop will be. In the week ahead, traders will be doing their routine examination of Monday’s Crop Progress and Condition Report and Thursday’s Export Sales data. Until the August WASDE report in three weeks, these reports will be traders’ central focus for figuring what to expect this season.

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