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.

July 20, 2017

Cotton Futures Rebound

 

It was a good week for cotton prices. Although December futures started the week only slightly above 2017’s lowest prices, futures quickly began to rally. Following the release of the weekly export sales report Thursday morning, the market pressed upward to the highest level in a month at 69.25 cents per pound. Despite the strength of prices, volume at the Intercontinental Exchange (ICE) was not very remarkable, and the overall number of positions in the market showed very little change this week.

Crop Conditions

There was very little change in this week’s Crop Progress and Condition Report. The share of the U.S. crop in “good” or “excellent” condition fell just one percentage point to 60 percent. The Texas crop’s good and excellent rating also was marginally lower at 49 percent, down 2 percentage points, but Oklahoma’s rating went from 85 percent to 92 percent. According to the surveyors, there is no “poor” or “very poor” cotton in Oklahoma, and just 8 percent was “fair.” This week’s report also saw crop progress slip behind the five year averages. Nationally, 70 percent of the crop was squaring versus an average of 75 percent, and 26 percent was setting bolls versus an average of 28 percent. Heat and clear weather may catch things up, but the figures reflect the widespread delays in the latter half of planting.

Commitments of Traders

Each Friday at 2:30 p.m. Central Time, the Commodity Futures Trading Commission (CFTC) releases the Commitments of Traders report that shows the number of bought and sold futures that traders are holding at the end of the previous Tuesday’s trading. The totals are reported by type of trader, separating hedgers, financial product dealers, large traders handling their own accounts, small traders, and a group called “Managed Money” which includes the accounts controlled by professional trading advisors on behalf of investors.

Many market analysts consider the position of Managed Money traders to be a good approximation of speculators’ collective opinion about the market, i.e. it says whether traders without any physical cotton dealings think it is a good time to buy or sell cotton. While these traders often lack a deep understanding of the cash market in any particular commodity and regardless of what information they used to make decisions, they account for a large amount of the trading that happens in commodity markets, so traders keep an eye on what they are doing.

The Commitments of Traders report is the only information source to do that, and it shows speculators have been selling for quite a while. Last Friday was the eighth week running that Managed Money traders sold more futures than they bought, and their relative holdings of bought versus sold futures is the lowest since Spring 2016. Managed Money selling had been a big source of pressure on the market, and the many traders will be eagerly watching the Commitments of Traders reports to discern any sign that the selling will stop or even reverse.

Good Export Sales Continue

Speculators have been selling, but mills keep buying. Although the market has grown accustomed to seeing larger figures for U.S. export sales, this week’s sales were still healthy. Foreign buyers contracted 27,200 Upland bales for immediate shipment and another 166,200 bales for shipment after August 1, the beginning of the 2017-18 marketing year. The U.S. will begin the 2017-18 marketing year with twice the usual share of forecast exports committed. Additionally, the Cotton On-Call report, which includes more than just U.S. business, showed merchants increased On-Call sales by more than 600,000 bales last week. Mills’ fixation commitments, including future crop years, are now back over 10,000,000 bales.

Market Attention Focused on Abandonment

Although demand shows little sign of slowing, new business may decelerate as fewer merchants want to take on the risk of finding the right qualities for their sales. Producing another uniformly high-grade crop would be a boon, but it does not seem probable. The market also has begun to take note of West Texas abandonment, although it is still difficult to say how many acres are lost or what the impact on yields will be. In any case, perfect crop outlooks have been rebuked, and traders have been adjusting their balance sheets. Hitting the current production target will require excellent yields which is keeping weather screens and crop reports at the center of the market’s attention.

In the week ahead:

  • The Crop Progress report will be released Monday at 3:00 p.m. CDT
  • The Export Sales report will be released Thursday at 7:30 a.m. CDT
  • The CFTC Cotton On-Call report to be released Thursday at 2:30 p.m. CDT
  • The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. CDT

Friday, July 14

The marketing week began quietly, and nearby futures contracts at ICE settled mixed. December cotton traded on both sides of unchanged and in a narrow range throughout the session; however, buyers prevailed, and the contract settled 21 points higher at 66.58 cents.

Monday, July 17

After trading mixed and in a narrow range again, December cotton prices surged to triple-digit gains on active buying. The contract settled at 67.76 cents, up 118 points. In fact, all futures contracts on the board settled with similar gains.

Tuesday, July 18

The rally continued as the market moved back above the 9- and 20-day moving averages near the end of the session. December cotton fell to negative ground early when selling pressure increased, but buyers lifted the contract back to the top of its 164-point range. December then settled at 68.22 cents, up 46 points.

Wednesday, July 19

The market seemed to pause and catch its breath after the three-day rally. December began the session under pressure until mid-morning when buyers returned. The contract then traded mixed for the remainder of the session and eventually settled 11 points lower at 68.11 cents.

Thursday, July 20

The market regained its footing on the final day of the marketing week. December cotton found buyers early and moved higher all day, reaching a high of 69.25 cents. The contract fell off its high but managed to settle 87 points higher at 68.98 cents per pound.