APRIL 27, 2018
DESPITE SOME VOLATILITY, FUTURES GAIN GROUND
Cotton futures whiplashed traders this week. After briefly touching the highest level since March 6 on Monday, prices collapsed Tuesday. Nevertheless, for the second time this month, prices shrugged off the declines for a quick recovery. July futures had fallen to 81.36 cents per pound on Tuesday, but bounced back to a high of 84.97 on Thursday. December futures made a life-of-contract high at 79.90 cents on Monday, fell to 77.50 on Tuesday, then climbed back to 79.36 by Friday.
MAY CONTRACT LIQUIDATION
There were 3,126 open May futures contracts at the beginning of the week, but the total fell sharply by Monday’s close, dispelling the market’s suspicion that someone was going to force a large physical delivery by refusing to sell out of their May futures. Certificated stocks (bales prepared for delivery against futures contracts) numbered 71,561 bales, which is roughly enough to deliver against 715 futures contracts. Just 338 May contracts remained by Monday’s close, the day that merchants could begin initiating physical delivery through the exchange.
WEST TEXAS RAIN A NON-EVENT
Helping the market lower, West Texas rainfall forecasts were favorable at the beginning of the week. Unfortunately, by Wednesday morning, precipitation expectations had lightened and shifted to the east. Kansas, Oklahoma, and the northern Texas Panhandle received rains over the past week, but the southern High Plains and much of the Rolling Plains still desperately need moisture. In short, the rain was far from enough.
COLD IN THE SOUTHEAST, RAIN IN THE DELTA
West Texas rainfall disappointment helped the market higher, but Southeast cold and wet conditions also have played a part. Monday’s Crop Progress Report showed only Georgia, Texas and Virginia marginally ahead of average planting pace, and Texas alone is ahead of last year’s pace. Fortunately, Southeast cotton areas should get a chance to advance plantings next week, but the Mississippi Delta has more rain and storms in the forecast. The eastern half of the Cotton Belt seems headed for a very late start.
JULY ON-CALL GROWS
According to this weeks’ Cotton On-Call report, mills had fixed all but 289,700 bales of May on-call purchases by last Friday’s close. However, July on-call obligations have grown to 5.56 million bales. Mills are hoping speculators and Index funds will actively sell out of their futures purchases so they can fix prices at a more attractive level, but speculative buyers are hoping for just the opposite. The mills’ large position could cause some fireworks similar to last year, and the speculator-mill game of chicken has again become a focal point for market analysts.
STRONG EXPORT DEMAND CONTINUES
U.S. export sales have been excellent. Thursday’s report, which showed activity for the week ended April 19, revealed 312,000 net new sales for 2017-18 and 259,300 bales for delivery in 2018-19. Demand was widespread among 19 countries, with Turkey, Vietnam, Bangladesh, and Indonesia taking the lead. Additionally, export shipments significantly exceeded the pace needed to hit USDA’s 15.0 million bales target, further increasing the odds that the department will lift U.S. 2017-18 exports again in May.
For traders and analysts, export sales reports remain in focus for gauging demand. However, many traders’ attention has pivoted to next season, especially to forecasting U.S. 2018-19 production. Southeast planting delays and Southwest drought will keep weather forecasts and the weekly Crop Progress reports front and center, and traders will be frantically sharpening their estimates ahead of the May WASDE report, when USDA’s 2018-19 balance sheet will be revealed.
IN THE WEEK AHEAD:
- Crop Progress will be released Monday at 3:00 p.m. Central Time.
- The Export Sales Report will be released Thursday 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.
