Cotton Market Weekly Masthead

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.

October 20, 2016

Open Interest in Cotton Futures Continues to Grow

Last week’s bullish WASDE report was still the most important factor in this week’s trading. Seeing both the tightened balance sheet and the market’s failure to fall through 67 cents, speculators renewed their confidence (and long positions) in cotton. Tuesday’s and Wednesday’s minor losses did little to keep buyers from running into the market. In fact, total open interest jumped 16,002 contracts as prices advanced, standing at 256,940 as of Wednesday’s close. Even the December contract’s open interest went up despite the fact that merchants have little more than a month to exit it before risking delivery.

Cotton weather helped the rally along, but it was not the forecast that worried traders. The extent of the damage from Hurricane Matthew still is not clear, but estimates are slowly tightening up. Unfortunately for many farmers in the Carolinas, some rivers did not crest until early this week, and the low side of estimated damages has been revised higher. According to the crop progress and condition report, two weeks ago North Carolina had 11 percent of its crop in poor and very poor condition. The latest report shows 35 percent of South Carolina and Virginia were not as badly hit, but North Carolina has the most cotton of those three states.

Both merchants and speculators alike expected this week’s export sales report to validate the USDA’s large increase in forecast U.S. exports. In the week ended Oct. 13, exporters sold a net 340,200 bales of upland cotton and 5,100 bales of Pima to more than 20 countries. China was the largest buyer with 199,000 bales. While export shipments were still a bit slow at 128,400 bales of upland, the sales were more than enough to push U.S. cotton commitments ahead of their usual pace. While the report showed healthy demand, it seemed to disappoint the market. Prices traded to a marginal new high in the minutes after the report’s release, then fell steadily to the low of 68.95.

Outside markets did nothing to help with Thursday’s decline, either. Commodities of all kinds and stocks fell, too. The U.S. dollar became more expensive versus its major competitors, and it appeared that the major traders decided to take riskier assets off their books. With a looming election and growing expectations of an interest rate hike coming, macroeconomic factors may have a larger than usual influence on this market for the next several weeks.

Friday, Oct. 14

Cotton futures at the Intercontinental Exchange (ICE) started the marketing week by settling on strong gains following the release of a good U.S. export sales report from USDA. December cotton settled at 70.57 cents per pound, up 126 points and its highest settlement since Sept. 22.

Monday, Oct. 17

The rally continued following the weekend despite early-session losses. December struggled to find direction before buyers re-entered the market. The contract traded up to 71.26 cents and settled at 71.19, up 62 points.

Tuesday, Oct. 18

After settling higher four consecutive ICE sessions, cotton futures lost their momentum and traded lower for most of the morning. Buyers then helped move contracts to positive ground with December reaching a high of 71.70 cents, but sellers returned. The December contract moved off its high and settled at 71.15, down 4 points.

Wednesday, Oct. 19

Cotton futures settled mixed after trading lower most of the ICE session. December cotton met resistance at 71.27 cents and fell to negative ground. The contract made a late-session rally but settled 5 points lower at 71.10 cents.

Thursday, Oct. 20

A stronger dollar seemed to overwhelm the impressive weekly export sales report, and nearby cotton futures settled with triple-digit losses. December traded to a low of 68.95 cents, its lowest in more than a week. The contract settled at 69.80, down 130 points.