MARCH 2, 2018

FUTURES CONTINUE HIGHER BEFORE MAKING CORRECTION

May futures climbed higher for the first half of the marketing week, continuing last week’s rally. Nevertheless, Thursday’s trading ended the streak of gains. Only hours after touching the week’s high at 83.06 cents per pound, May prices fell to the week’s low at 80.67 before bouncing back to settle at 81.81. December futures faltered as May futures fell but still managed to settle higher at 77.11 cents Thursday. In fact, December futures have settled slightly higher every session for the past two weeks, rallying to new life-of-contract highs five times during that period. Wednesday’s high at 77.50 is now the highest price the December 2018 futures have ever traded. Volume was relatively light this week, but the total number of open contracts continued to grow, implying new buyers were behind the price advances in the first half of the week.

CONCERNS ABOUT EXPORT SHIPMENTS

Thursday’s Export Sales Report seems to have precipitated the fall in prices. Sales were still very strong with 294,100 bales sold for this marketing year and 118,200 for next marketing year. Nevertheless, reported shipments, bales actually leaving U.S. borders, were less than expected. At 290,800 bales, including Pima, shipments were significantly less than the average of 350,000 needed to hit USDA’s 14.5-million-bale forecast for 2017-18. It is possible for shipments to catch up, but the lower-than-expected figure was the last data point for USDA to consider before releasing its March World Agricultural Supply and Demand Estimates (WASDE) update next Thursday. Although many traders expect USDA to lift its export estimate on this report, February’s slow shipping pace will make such a revision seem unlikely.

DEMAND STILL STRONG

Still, the market does not seem to think the slower shipments nor the potentially larger ending stock are a total cause for alarm. Both the size and consistency of new sales seem to imply there is still plenty of demand. The slower shipments generally have been taken as a reflection of the logistical headaches for trucking companies caused by the implementation of the electronic logging device rule. It seems likely a larger than usual portion of sales will be carried over into next marketing year and shipped in August and September, rather than July.

DROUGHT CONTINUES IN THE SOUTHWEST

Additionally, the market seems to have factored in the tenuous moisture situation in the Southwest, which could significantly increase abandonment. After all, planted acres do not mean much out here. Harvested acres are what counts. Some long-range forecasts do have above average precipitation predicted for July, but that is just too late to make much difference. While there was significant improvement in Central, East, and South Texas on the Drought Monitor map, the sprinkles received in West Texas, Oklahoma, and Kansas cotton territories were not enough to make a dent.

WASDE REPORT COMING

Next week’s WASDE update will take center stage. Although traders will still be keeping close watch on the weekly Export Sales Report, especially shipments, the WASDE release at 11:00 a.m. Central Time on Thursday will be the central concern. Cotton analysts have some disagreement about what revisions may be coming, especially with regard to production and exports. Even so, with gins still running and the shock of new logistical regulations still being resolved, we doubt the March estimates will definitively settle many outstanding questions.

IN THE WEEK AHEAD:

• The weekly Export Sales Report will be released at 7:30 a.m. Central Time Thursday.
• The March WASDE Report will be released at 11:00 a.m. Central Time Thursday.
• The Cotton On-Call Report will be released at 2:30 p.m. Central Time Thursday.
• The Commitments of Traders Report will be released at 2:30 p.m. Central Time Friday.