Cotton showed some strength this week. Last Thursday’s settlement at 55.39 cents per pound was both the opening price and the low. After minor rallies Friday and Monday, July futures ignored the large increase in world supplies on the WASDE report, only to set a new multi-week high at 58.59 cents. July futures settled at 57.85 cents Thursday, gaining 246 points from the prior Thursday’s close. Trading volumes were erratic, with heavy activity on Tuesday and Wednesday and very low levels the rest of the week. Open interest seemed to have found a floor, adding 2,326 to bring the total number of open contracts to 176,919.
Stocks lost ground this week as traders and investors grappled with whether April’s frenzied recovery was premature. While new Covid-19 case counts have fallen in many areas of the world, some areas that seemed under control had infections re-emerge, including South Korea and China. U.S.-China tension also seems to have returned with President Trump apparently regretting dealing with China at all, despite a resumption of China purchasing U.S. agricultural goods. On top of it all, the chairman of the Federal Reserve signaled in congressional testimony that recovery would need more policy support. For now, the good news seems to be coming more slowly and in smaller pieces that include breakthroughs in Covid-19 medical care and the re-opening of businesses.
This week’s U.S. Export Sales Report was similar to recent weeks as the lion’s share of new business continued to come from China and Vietnam. Of the 238,100 bales of net new sales for delivery in the last few months of 2019/20, 198,000 were for China and 19,200 were for Vietnam. Of the 93,300 Upland bales ordered for next marketing year (i.e. for shipment after August 1) 68,200 were for China and 23,800 for Vietnam. Demand outside these two destinations has remained anemic, but the U.S. export commitments are still very high relative to the USDA’s U.S. 2019/20 export estimate at 15 million statistical bales. At the end of the year, these numbers will have to converge. On one hand, export sales could be reduced by cancelled sales or shipments could be delayed until next season as some sales are every year. On the other hand, the exports could exceed the USDA estimate and tighten the U.S. balance sheet.
The USDA released its May update of World Agricultural Supply and Demand Estimates (WASDE) on Tuesday. The world ending stock forecast for 2019/20 was revised up an astonishing 5.898 million bales to 97.16 million. Global consumption was pulled down to 105 million bales as many cotton consuming countries extended their lockdowns and production was increased in India, Turkey, and the U.S. For the 2019/20 U.S. balance sheet, production was increased 112,500 bales while mill consumption was revised down 200,000 bales to 2.7 million bales. With an additional reduction in the loss column, the USDA now expects U.S. ending stocks to rise to 7.1 million bales at the end of this season.
This month’s report also gave the first country-by-country look at the USDA’s expectations for the 2020/21 marketing year. For the initial balance sheet, the USDA expects world production to be almost 119 million bales. Global use is forecast to rebound to 116.5 million bales from 105 this year, and global ending stocks are expected to grow to 99.4 million bales. Within the U.S., production is expected to be 19.5 million bales, with exports at 16 million and consumption rebounding to 2.9 million bales. U.S. ending stock are predicted to grow to 7.7 million bales.
THE WEEK AHEAD
Next week will be a bit more of a standard week for traders. Hopefully this week’s showers will have helped planting progress on Monday’s Crop Progress report. Export Sales will be a focal point again as traders figure out whether Chinese demand has continued. Outside market fluctuations will likely continue influencing cotton prices for the foreseeable future, too.
IN THE WEEK AHEAD: