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.

December 14, 2018

Cotton Future Trade in Tight Range Throughout Week         

  • WASDE Report Released
  • Export Report Showed Slow Demand
  • China Rolls Back Retaliatory Tariffs

Fatigue seems to be setting in with cotton traders. Despite the release of fresh supply and demand estimates from the USDA, a jittery stock market, and more production headaches cotton futures traded in a relatively tight range from a high of 80.66 cents per pound Tuesday to a low of 78.60 on Friday. Daily trading volumes were unremarkable, and open interest was just 1,404 contracts higher from last week. Macroeconomic risks have kept speculative traders on the sidelines, and the market seems to be wandering between producer offers above the market and mill bids and fixation orders below.

WASDE Report Released

The USDA released December’s World Agricultural Supply and Demand Estimates on Tuesday at 11:00 a.m. Central Time. Analysts were mostly in agreement with revisions to foreign figures, but the U.S. balance sheet threw the market a curve ball. Although most pundits had expected U.S. production to come down modestly, the forecast actually rose 180,000 bales to 18,588,000 bales. As the Crop Report details, decreases in Oklahoma and the Southeast were more than offset by an unexpected 300,000 bale increase to 7.0 million for Texas.

The surprise increase in U.S. cotton production sent the market lower. March futures fell from 80.60 to as low as 79.11 in the hour after the report’s release, but didn’t stay down for long. Traders quickly noted that the WASDE had some bullish foreign revisions, too. World production was lowered 650,000 bales as China, India, Pakistan, and Turkey saw major decreases that were partially offset by increases in Brazil, West Africa, and the US. China’s consumption was cut one million bales to 41.5, while Pakistan consumption was also slightly lowered. The world ending stock forecast was increased 580,000 bales, up 500,000 in China and 80,000 bales in the rest of the world.

Export Report Showed Slow Demand

This week’s export sales report showed very slow demand for the week ending December 6. Although shippers reported 109,700 bales of new sales, there were also 62,600 bales of cancellations. Net new sales were just 47,100 bales, and 154,500 bales were shipped. Export commitments (outstanding orders plus what has already been shipped) now total 10.27 million bales, which is roughly 70 percent of the USDA’s U.S. export forecast. Despite the recent lack of fresh demand, the pace of commitments is still far ahead of average.

Broader market sentiment continued to be dominated by pessimistic news cycles and continuing macroeconomic fears this week. The news that China has already resumed soybean purchases and is likely to resume corn purchases soon seems to have been ignored by the market. Hastened by signals that their economy is slowing more rapidly than expected, China leaders have made rapid changes to demonstrate their eagerness and sincerity in making a lasting trade deal. Retaliatory tariffs are being rolled back and market access for foreign companies enhanced, but the market does not seem to care. Unfortunately, the dispute with China has become just one risk among several that are keeping people up at night.

Looking Ahead

In the weeks to come, traders will have their attention split between receiving cotton, daily classing reports, the stock market, interest rates, foreign demand, and the U.S.-China trade negotiations. It is all too much for many of them, and the constant vigilance has created numbness among many market watchers. Few are willing to take a big position in such a high-risk environment. Even the high-winds and snow on the remaining West Texas crop could not stir the market this week. Until fear begins to subside or new export demand becomes public, it is likely that the market continues in the recent range, bouncing between mill bids and fixation orders below and producer selling above.

In the week ahead:

  • The CFTC Cotton On-Call report to be released Thursday at 2:30 p.m. Central Time.
  • The Export Sales Report will be released Thursday at 7:30 a.m. Central Time.
  • The CFTC’s Commitments-of-Traders will be released Friday at 2:30 p.m. Central Time.

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