APRIL 13, 2018

FUTURES GAIN MORE GROUND

May futures advanced this week, dipping to the week’s low of 82.31 cents per pound on Tuesday then rallying to 84.04 cents, a four-week high, on Wednesday and even higher on Friday. Volumes were high as Index funds rolled their long positions forward, simultaneously selling out of May futures while buying into July and December. Combined with the rally in May and July, the Index funds’ rolling activity helped December futures make small but consistent gains. By mid-morning Friday, December futures had climbed to a new life-of-contract high at 78.95 cents per pound.

EXPORT SALES ESTIMATE RAISED

Tuesday saw the release of USDA’s April World Agricultural Supply and Demand Estimates (WASDE). The department did not change the current U.S. crop estimate but revised U.S. exports to 15.0 million bales, up 200,000, in line with analysts’ expectations. Thus, U.S. 2017-18 ending stocks were reduced from 5.5 to 5.3 million bales. The tighter U.S. balance sheet probably helped support the market.

WORLD ENDING STOCKS LOWERED

Foreign supply and demand estimates were more volatile. World production grew, thanks to ideal growing conditions in Brazil. USDA reduced total use on lower Indian and Indonesian consumption, which an increase in Vietnam partially offset. Nevertheless, a set of historical revisions to Brazil and Australia, sharply reduced the beginning stocks estimate, overwhelming the effects of larger production and lower consumption. USDA ultimately revised world ending stocks down by 560,000 bales to 88.29 million.

ON-CALL FIXATIONS

As expected, mills made good use of last week’s dramatic spike lower to fix a large portion of remaining on-call commitments against May futures. Mills fixed 721,200 bales, leaving just 1,594,700 at the start of this week. However, their July position was virtually unchanged at 4.93 million bales left to fix. The remaining May commitments are not much of an issue, but July’s commitments have become a focal point for many analysts. Mills will need more sell-offs in the next two months to be able to reduce their July on-call position at a profit.

EXPORT SALES DIP, SHIPMENTS STRONG

This week’s export sales report showed net new sales of 179,400 bales for 2017-18, which is the lowest level since prices first spiked above 80 cents in mid-January. However, gross new sales were 302,600 bales. Unfortunately, Pakistan cancelled 119,400 bales of orders, which reduced the overall total. On the positive side, exporters shipped nearly 500,000 bales last week, which is far more than the average pace needed to hit USDA’s upwardly revised target of 15.0 million bales. A few more weeks at the current pace would pave the way for USDA to continue revising export sales upward.

MONITOR FUTURES POSITIONS, SHIPMENTS AND WEATHER

Over the next several days, merchants will be focused on remaining May futures positions since the May contract’s First Notice Day is April 24. As of Monday, April 23’s close, open long positions (bought futures) risk taking physical delivery. Next week’s export sales report also will be a focal point as continued good shipments strengthen the market’s conviction that U.S. exports will move even higher. Lastly, for obvious reasons, traders will continue to closely monitor Southwest regional weather forecasts.

In the week ahead:

• Weekly Crop Progress Reports have begun. They are released Monday’s 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.