JANUARY 25, 2019

FUTURES POST SLIGHT GAIN THIS WEEK

• Government to Reopen at Least Temporarily
• Why Weekly Export and Other Reports are Needed
• Classing Reports Help Gauge Harvest Progress
• Volatility Likely Pending Reports

From last Friday’s close at 73.89 cents per pound, cotton futures posted a week-over-week gain of 24 points to hit 74.13 cents. The resumption of trading on Tuesday (after Monday’s Martin Luther King Jr. holiday) saw prices slip to the week’s low at 72.75. From there, prices oscillated back upward, crossing above 74.00 cents on Wednesday and eventually on Friday. Open interest fell slightly this week and daily volume was lower throughout the week.

GOVERNMENT SET TO RESUME WORK

Late in the session on Friday, President Trump announced that he and congressional leaders had reached an agreement about reopening the federal government through a three-week continuing resolution until February 15. During this period, congress is expected to debate “in good faith” a normal funding measure that will include border security. President Trump said that he expects the bi-partisan conference to hear out the expert recommendations of various law enforcement agencies and the department of defense. The president also indicated that the continuing resolution will fund back pay for federal workers and contractors affected by the shutdown. However, if no permanent deal is reached by February 15, President Trump warned that he will either allow another partial shutdown or use his emergency powers to build a secure barrier on the southern border.

TRADE AWAITS OFFICIAL REPORTS

News of the compromise sent markets instantly higher. Cotton futures rallied 70 points from the moment the media announced the president’s address into the close of trading. For cotton in particular, the reopening of the government means government agricultural programs have clear funding. It also means government collected data will begin to flow again. In particular, traders will be waiting expectantly for the USDA export sales report to reveal what quantities of agricultural products have been sold in recent weeks. The window of funding also means USDA should be able to issue a February WASDE report and that the CFTC commitments of traders and cotton on-call information will be released.

CLASSING UPDATE

Classing is fee-based, so we are still fortunate to have the daily and weekly classing report data to help monitor harvest. In the week ended January 24, USDA classed 499,706 new samples including Pima. Season-to-date, 16.04 million samples have been classed, which leaves about 2.2 million samples to hit USDA’s forecast production. If USDA is correct, there are still approximately 200,000 Upland samples each in the Southeast, Mid-South, and Far West. Texas, Oklahoma, and Kansas still have about 1.4 million samples to go if USDA targets are correct.

EXPECTING VOLATILITY

Mill demand is still evident and traders will be delighted to see where commitments stand after several weeks of low prices. Nevertheless, it probably will take longer than expected for government reports to start flowing again. Data must be collected before it can be checked and disseminated, which means reports relying on manually reported data will take time. In the week ahead, traders most likely will be closely watching for data release schedules. Volatility is likely to be quite high in the weeks ahead as the backlog of data begins to hit the markets.