MAY 3, 2019

FUTURES PRICES DOWN WEEK OVER WEEK

• Some News Positive, Some Not
• Traders Await Supply/Demand Estimates
• Export Sales Better But Shipments Disappoint
• Still Waiting For Trade Negotiations News

Over the last few sessions, futures prices have fallen to their lowest levels in the past six weeks. July’s prices touched a high of 78.09 cents per pound on Monday and fell to a low of 75.35 cents Thursday. December fell from a high of 76.66 Monday to a low of 74.38 Thursday and settled at 74.45 today, down 174 points for the week. July finished at 75.68, down 202 points since last Friday. Average daily volume was relatively low, and today’s volume of 16,481 contracts was the lowest daily total in months. Open interest has risen 7,396 contracts this week, implying sellers were eager entrants into the market.

ECONOMIC FACTORS

News from the broader markets was largely positive this week. Negotiators reported good progress in trade discussions with China. Unemployment fell to the lowest level since 1969 at 3.6 percent, and the Federal Reserve kept interest rates on hold as inflation data was relatively flat despite increases in consumer spending. One unfortunate side effect of the strong U.S. data is  our currency remains exceedingly strong in foreign exchange markets. With the U.S. dollar still near its highs versus most major trading partners, U.S. goods face a stiff headwind in international markets.

SUPPLY QUESTIONS

Supply concerns were another factor weighing on the market this week. Traders’ attention has been turning increasingly toward next crop year since USDA’s May WASDE report (to be released next Friday at 11:00 a.m.) will include the first detailed forecast of world supply and demand for the 2019-20 season. Decent soil moisture and a favorable seasonal precipitation outlook for the Southwest (Texas, Oklahoma, and Kansas) likely will cause USDA to use a lower than average abandonment forecast for this region, which could make up for the lower than expected plantings shown on the Prospective Plantings report at the end of March.

EXPORT SALES AND SHIPMENTS

Demand also became a worry this week. The Export Sales Report for the week ended April 25 disappointed the market. Sales were better than needed, but shipments of just 292,600 Upland bales and 10,300 Pima bales fell well short of the 400,000 weekly average needed to meet  USDA’s 15 million bale forecast for the U.S. 2018-19 marketing year. The slower shipments have raised the risk that USDA will cut its export figure for this year and raise ending stocks. While shipment before or after July 31 does not change whether the bales are committed, a revision to USDA’s forecast could easily change how market participants perceive tightness.

TRADE NEGOTIATIONS

As with most other commodity crop producers, the main bullish hope of the cotton grower has become a favorable resolution to the U.S.-China trade dispute. A return to a normal market share of China’s imports and perhaps some large purchases of U.S. cotton for China’s reserve seem necessary to many analysts to prevent prices from going lower in the season ahead. On that point, comments from the administration have built expectations of an up or down decision at the end of next week after meetings with a large delegation of Chinese trade negotiators end. For traders’ sake, the real questions are whether and when the agreement details will become public. Without clearing the demand uncertainty from the market, it is difficult for most traders to build confidence in cotton or any other agricultural market.