The information contained herein is provided by Plains Cotton Cooperative Association (PCCA), a farmer-owned cotton marketing cooperative headquartered in Lubbock, Texas. It is for general informational purposes only and is obtained from sources believed to be reliable; however its accuracy and completeness is not guaranteed by PCCA, and PCCA offers no representations or warranties of any kind in providing this information. Nothing contained herein is intended, or should be construed, as advice or guidance for the marketing of cotton.

April 20, 2018

May Liquidation Continues, Demand for Physical Cotton Remains Good

 

Cotton futures were relatively calm this week. Traders continued to work their way out of their May futures positions where the number of open contracts has fallen to just 7,425. July futures, where open interest has swelled to 129,280 contracts, are now the market’s central focus. July futures started Monday at 83.94 cents per pound and fell to 81.97 on Tuesday, which was the week’s low. December futures traded between 78.94 cents and 77.92 on light volume from Monday through Thursday.

Another Good Export Report

New U.S. export sales continued to beat expectations. Net new sales totaled 290,200 bales of Upland for this marketing year and 229,800 bales for next marketing year. Shipments, i.e. cotton physically exported, were 362,000 bales, which is greater than the average pace needed to hit USDA’s export forecast for 2017-18. The good sales and shipments helped futures to settle higher on Thursday, which was their first gain for the week. The rally continued on Friday, and December futures made a new high.

Mill Fixations

Thursday’s Cotton On-Call report showed mills had just 1.27 million bales left to fix against May at the start of the week. May futures seem to be resolving in an orderly fashion. However, mills added 184,500 bales to their July on-call commitments, pushing the total to fix against that contract to 5.11 million bales. Mills’ large commitment to fix against July futures may continue to encourage speculative buyers. Additionally, unfixed sales for next crop year jumped an astounding 1.1 million bales, bringing the total on-call commitment across both crop years to 15.2 million bales.

Rain Chances

Rain in the forecast for Friday put a note of caution into the market starting last week. However, the probability of precipitation in the Lubbock area has decreased over the last few days. The bulk of predicted precipitation has moved eastward. If a good, general rain does actually fall in this region, the market could lose some of the weather-based support that the drought has provided.

Traders’ Daily Analysis

In the week ahead, merchants will focus on closing out whatever May futures remain on their books by Monday’s end to avoid taking physical delivery. Traders continue to monitor the weekly export sales report to keep track of demand. Attention is pivoting to new crop, and crop progress is joining the weather forecasts in traders’ daily analysis of potential production for 2018-19.

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 Commitments-of-Traders Report will be released Friday at 2:30 p.m. Central Time.

Friday, April 13

Traders showed little excitement after December cotton reached a new contract high of 78.97 cents per pound. Selling then returned and dropped the contract back to the middle of its narrow 34-point range before settling at 78.91 cents, up 8 points. July, the lead month, found strength early in the session and reached an intraday high of 83.64 cents. The contract settled at 83.35, up 35 points.

Monday, April 16

July cotton opened lower but briefly traded on positive ground when buying emerged. The contract then moved back below unchanged and settled 13 points lower at 83.22 cents. December opened near unchanged but moved to slight gains early where it met resistance. The contract returned to negative ground for the remainder of the session and settled 37 points lower at 78.54 cents.

Tuesday, April 17

Nearby futures ended the session under pressure after trading mixed. July fell victim to selling, eventually trading as low as 81.97 cents per pound. Buying lifted it off the low and it settled at 82.95 cents, down 27 points. December also struggled to find direction all session and settled at 78.40 cents, down 14 points.

Wednesday, April 18

Nearby contracts again traded in a two-sided fashion and settled with slight to moderate losses. July cotton moved to modest gains early but succumbed to selling. The contract then traded on modest losses and settled 34 points lower at 82.61 cents. December also traded on both sides of unchanged before settling 8 points lower at 78.32 cents per pound.

Thursday, April 19

July cotton again struggled to find direction and traded mixed until the release of USDA’s weekly export sales and shipment report. The contract moved off its low but remained on negative ground until finding strength late in the session. July settled at 82.82 cents, up 21 points. December cotton also traded mixed but managed to settle 27 points higher at 78.59 cents.