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.

June 21, 2019

Market Turns Bearish on Weak Export Sales Report

  • Open Interest Falls to Lowest Level Since November 2015
  • Planting Makes Good Progress
  • Global Events Add to Market Uncertainty
  • USDA Acreage Report Due Next Week

July futures tumbled this week, falling to new lows on Thursday after the release of a rather weak export sales report. Open interest in July has dwindled to just 2,096 contracts, but the fall to a low of 62.38 cents per pound on Thursday put a bearish mood in the market. December futures had risen earlier in the week but fell in sympathy with July on Thursday, giving back the gains. December futures finished the week at 65.56 cents, down 15 points from last Friday. July extended losses to 60.27 cents on Friday and settled at 61.19. Open interest fell sharply on Monday, which was partially expected because last Friday was July option expiration. By the end of the week, open interest had declined to 176,222 contracts, which is down 29,822 from last week and is the lowest level since November 2015.

Planting Progress and Crop Conditions

This week’s Crop Progress and Condition report showed significant catching up in cotton planting. The Cotton Belt added 14 percentage points to plantings in the week ended June 16. At 89 percent, plantings are still five percentage points behind the five-year average of 94 percent. Squaring is at 19 percent, one percentage point above average, but the advanced pace in the Southeast and South Texas is hiding tardiness in the Mid-South. The national share of cotton rated “good” or “excellent” advanced five percentage points to 49 percent. There again, stronger ratings in Texas and Oklahoma crop conditions are hiding the relatively poor performance in the rest of the country relative to last year. By all accounts, this year’s crop has had one of the most mixed-up starts on record.

Economic Developments

Global events piled more uncertainty onto markets this week. Attacks on tankers in the Strait of Hormuz and Iran’s attack on an American drone have ramped up the risk for military conflict in the Middle East, igniting a sharp rally in crude oil prices. The Federal Reserve also elected to leave rates unchanged this week and seemed to open the door to more accommodative policy in the face of international trade risk and some slower U.S. economic data. Traders also have been on edge ahead of President Trump and President Xi’s meeting at the G-20 summit in Japan next week. Few pundits expect any sort of a deal, and many think a delay in additional tariffs is a best-case scenario. Any improvement in the conflict would be a welcome surprise for commodity markets.

Export Sales and Shipments

Mills continue to struggle with slow downstream demand as the world’s brands and retailers try to figure out what is coming next. Slower orders were in evidence on the latest weekly Export Sales Report. Including some cancellations and some rolling forward of older orders to the next marketing year, total net new sales of Upland and Pima combined were just 106,600 bales. Combined shipments were 340,400 bales, which was better than many expected but still below the average needed for the U.S. to hit USDA’s current export target of 14.75 million bales.

Weekly Reports and Production Forecast

Production information from the Crop Progress and Condition Report and demand indications from the weekly Export Sales Report will continue to figure centrally on traders’ minds, but next Friday also will be the release of USDA’s Acreage Report. The June Acreage Report information will replace the planted acreage figures from Prospective Plantings released on March 29 as  USDA formulates its July production forecasts. This year’s weather and wild price swings will ensure the Acreage Report is closely watched, but it is unlikely to provide much more clarity. Updated abandonment and better yield projections are not likely to be more accurate until August. Volatile and uncertain demand also may limit the Acreage Report’s impact. The Trump-Xi meeting likely will drown out most other factors in the near term.

In the week ahead:

  • Monday at 3:00 p.m. Central – Crop Progress and Condition
  • Thursday at 7:30 a.m. Central – Export Sales Report
  • Thursday at 2:30 p.m. Central – Cotton-On-Call
  • Friday at 11:00 a.m. Central – Acreage Report
  • Friday at 2:30 p.m. Central – Commitments of Traders

 

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