AUGUST 31, 2018
LITTLE CHANGE IN MARKET ACTIVITY, FUTURES REMAIN IN SAME RANGE
- Crop Conditions Improve Slightly
- South Texas Harvest Advances
- Is Demand for U.S. Cotton Holding Steady?
- Will Interest Rates Rise?
- What Will Traders Be Watching?
Market activity was eerily similar to last week. Prices rallied Monday and Tuesday but gave back most of the gains Wednesday and Thursday. This week’s high was 20 points higher than last week at 84.25 cents per pound, but the majority of trading happened within the same price range from 81.00 to 84.00 cents. Volumes were low, and there was relatively little change in the number of open contracts in the market.
CROP PROGRESS AND CONDITION
Production prospects improved for most of the Cotton Belt. The share of cotton in good or excellent condition rose two percentage points to 44 percent across major cotton producing states. Southwest changes were mixed. Texas conditions saw a five point shift upward from very poor and poor into the good or excellent ratings, but that still leaves 46 percent of the Texas crop in the bottom two categories. Oklahoma, on the other hand, had cotton slip out of the fair category, raising the percentage of cotton rated poor and very poor to 46 percent, matching Texas. In terms of progress, 21 percent of cotton fields across the country have bolls beginning to open, three percentage points ahead of average pace.
HARVEST AND QUALITY REPORT
The South Texas harvest is moving along under mostly clear, open weather. Through Thursday, the Corpus Christi classing office was approaching 400,000 bales classed. Most of the crop has classing of 31 color and better with 3 and better leaf. The micronaire average over the last several days is running between 4.7 and 4.9 with a fiber strength of 30 grams per tex. Growers have a little over 6,000 bales of the 2018 crop offered on The Seam’s G2B platform.
CHINA CONTINUES TO BUY
Demand for U.S. cotton remains healthy. Although net new export sales were slightly lower this week, they were still higher than the average needed to hit USDA’s current target. Exporters sold another 150,600 bales of Upland cotton for this marketing year and 49,600 for 2019-20. The most surprising thing about this week’s report was the largest buyer. Despite the continuing trade conflict, Chinese buyers ordered 44,500 bales for this marketing year and 48,400 for the next, which is a good sign for demand.
ALL EYES ON THE FED
U.S. economic growth continues to hum along. In fact, the Commerce Department revised its estimate of 2018 2nd Quarter growth up to 4.2 percent (+0.2) this week. The revision solidified expectations that the Federal Reserve will continue to raise interest rates this year, which reignited a rally in the value of the U.S. dollar. Unfortunately, a strong dollar is a headwind for U.S. exports since importers must pay more of their domestic currency to purchase the same amount of goods. On the positive side, a new trade deal between the U.S. and Mexico (and potentially Canada) has been drafted, injecting some optimism about international trade.
KEEPING AN EYE ON WEATHER AND EXPORT REPORTS
The usual information will retain the market’s focus in the week ahead. Crop Progress and Condition reports may give some indication about the state of the crop ahead of September’s production figures from USDA. Traders are still keeping one eye on weather forecasts. Lastly, the export sales report next week will be released Friday because of the holiday and will give the market an update on demand. Outside shocks could roil the market, but futures seem to be waiting for new information before prices will exit the recent range.
IN THE WEEK AHEAD:
- Crop Progress will be released Tuesday at 3:00 p.m. Central Time.
- The Export Sales report will be released Friday at 7:30 a.m. Central Time.
- The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. Central Time.
- The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. Central Time.
