AUGUST 16, 2019

COTTON FUTURES UP SLIGHTLY

• WASDE Report Shows Consumption Slowing
• Crop Conditions Slightly Improving
• Export Report Shows Many Countries Buying U.S. Cotton
• Classing Report Shows Good Quality from South Texas

December 2019 futures closed above 60 cents per pound for the first time since August 1.   December settled at 60.13 on Friday, up 51 points on the day, and up 123 points for the week. Average daily volume was significantly lower than the past few weeks. Open interestcontinued to rise, gaining 3,427 contracts to 215,266. Strong export sales and concern about growing drought in the Southwest helped to support the market.

WASDE REPORT

The USDA released the August update of the WASDE report on Monday. The report showed higher beginning stocks, production, exports, and ending stocks in the U.S. for the 2019/20 marketing year. The production forecast for the 2019 crop was raised 2 percent to 22.5 million bales, on the National Agricultural Statistic Service’s first survey-based production forecast. The survey indicates slightly higher area and yield compared with last month’s expectations, resulting in the largest crop in 14 years. Beginning stocks were raised 250,000 bales due to lower-than expected 2018/19 exports, but exports for 2019/20 were raised 200,000 bales to 17.2 million, resulting in ending stocks of 7.2 million, 500,000 bales higher than July’s forecast.

World cotton consumption was projected lower, and largely accounts for a 2.0-million-bale increase in 2019/20 global ending stocks from the July forecast. Beginning stocks were higher, due to a 500,000-bale decline in 2018/19 consumption. Production in 2019/20 was forecast 200,000 bales lower this month, but higher beginning stocks and a 1.2-million-bale decline in projected consumption more than offset the lower production.

CROP CONDITIONS

Monday’s Crop Progress and Conditions Report shows the U.S. crop with 56 percent in the “Good or Excellent” category versus 54 percent for last week. Crops in Texas, Oklahoma, and Kansas showed the same or slightly higher percentage in “Good or Excellent” versus last week as well.  It will be interesting to see if this can hold going forward for the Southwest. The majority of this area has little or no rain in the forecast on top of an expected return to 100+ degree temperatures.

EXPORT SALES AND SHIPMENTS

U.S. exports were very strong this week. Exporters made net new sales of 329,100 Running Bales for 2019/2020 for the week ending August 8, 2019 with Bangladesh (120,400 RB) as the largest buyer. Seventeen countries were noted as buyers- which is good news!  Reductions were reported for China (13,300 RB).  For 2020/21, net sales of 151,200 RB were primarily for China (117,900 RB), Mexico (16,300 RB) and Vietnam (14,500 RB).  Exports of 274,200 RB were primarily to Vietnam (57,700 RB), India (46,500 RB), Turkey (43,500 RB), Bangladesh (30,500 RB), and Indonesia (21,500 RB).   We hope the reported sales to China (117,900 RB) are a good sign.

COTTON CLASSING

The Corpus Christi Classing Office has classed over 90,000 bales as of August 15, 2019.  The predominant color for the season is excellent, with color grade 21 or better and leaf 3 or better.  Other qualities are good as well, with average staple of 35.50, average strength 30.6, average uniformity 81.1, and average micronaire of 4.4.

While traders will give next week’s Crop Progress and Condition Report and the Export Sales Reports the obligatory attention they deserve, the world economy has driven much concern this week. Major protests in Hong Kong have the world watching to see if China will use its military to “quell” the demonstrations, and bad economic data out of China and Germany has macroeconomists worried. Stocks fell sharply on Wednesday, and the yield on the U.S. 30-year bond touched an all-time low as investors scrambled for a safe place to put their cash.  Unfortunately, international events and macroeconomic news may keep traders on the defensive in the weeks to come.

IN THE WEEK AHEAD:

• Monday at 3:00 p.m. Central – Crop Progress and Conditions
• Thursday at 7:30 a.m. Central – Export Sales Report
• Thursday at 2:30 p.m. Central – Cotton-On-Call
• Friday at 2:30 p.m. Central – Commitments of Traders