JUNE 12, 2020
Futures trading activity started our reporting week (Friday) off with a bang as commodities were swept higher in broader market euphoria. July cotton shot up to the highest price since March 11 at 62.32 cents per pound. Cotton spent the rest of the week giving back those gains slowly, eventually touching the week’s low at 59.35 cents just before the release of this week’s Export Sales figures (more on those below). Despite a collapsing stock market, July futures regained some ground and settled at 60.02 cents Thursday, up two points for the week. Trading volume was heavy as index funds were busy rolling positions forward to December this week. Open interest fell 6,395 contracts to 179,706.
Last Friday’s monthly jobs report showed an increase in hiring for May versus broad expectations of a sharp decline. The bit of good news sent an already rocketing market even higher. In fact, the S&P 500 erased its losses since the beginning of 2020 in Monday’s trading. Nevertheless, some identified errors in the jobs data, accelerating coronavirus cases in many “hot spots”, and an exceedingly negative outlook from Federal Reserve Chairman Jerome Powell on Wednesday had investors running for cover. Stocks erased the prior two weeks gains in Thursday’s trading, while treasuries surged in the flight to safety. Commodities were mostly lower to end the week, with cotton also caught in the carnage.
The Export Sales Report seems to have stolen the WASDE’s thunder this week. While the WASDE was largely as the market expected, export sales were much larger. Net new Upland sales were 399,600 for shipment before August 1 and 193,400 for shipment in the incoming marketing year. Shipments also rebounded to 309,000 bales of Upland and Pima combined, nearly at the level needed to hit the USDA’s continuing 15 million-bale export forecast for 2019/20. Sales remain overly concentrated to a few markets. China accounted for 371,200 bales of total sales, and Vietnam was 198,400. The only other significant buyers were Turkey (11,100 bales) and Pakistan (13,200). Exporter’s moods are unlikely to brighten until broader demand resurfaces.
WASDE REPORT RECAP
The USDA released the June World Agricultural Supply and Demand Estimates (WASDE) Thursday at 11 a.m. Central time. There was not much there to surprise traders. For the 2019/20 balance sheet, consumption was revised downward 2.3 million bales (including 200,000 within the U.S.) to 102.65 million bales. Consumption for 2020/21 was also cut 2.0 million bales. With some historical revision to Argentina’s production and small changes elsewhere, World ending stocks for the 2020/2021 marketing year are now forecast at 104.67 million bales, up 5.24 million from last month. U.S. ending stock for 2020/21 is forecast at 8.0 million. U.S. production and exports were unchanged in both marketing years.
CROP PROGRESS AND WEATHER
This week’s Crop Progress and Condition report showed plantings just a bit behind at 78% of the Cotton Belt versus a five-year average of 81%. Squaring has also begun on 13% of the crop. Unfortunately, the condition of the crop is off to a bad start. Only 43% of the crop is rated “good” or “excellent”, versus 44% last year, which was not a good year either. Sadly, the weather is not likely to improve readings either. High winds and heat have sand-blasted a large portion of fields that were just getting started, and the outlook for the Southwest continues to be hot and dry through the end of June. The Mid-South has had the opposite problem, with excessive rains from Tropical Depression Cristobal drenching many fields, but they are forecast to have a break from wetness over the next two weeks. Rain is only really expected over the Carolinas for the next week, but the forecasts in cotton areas are torrential.
THE WEEK AHEAD
July options expire Friday June 11, and index fund rolling is mostly over. Cash traders and shippers will mostly be concerned with getting sales in order and finishing remaining July fixations before the July contract’s first notice day on the 24th. As old crop positions are wound down, traders’ attention is turning to new crop. The weekly progress and condition reports and constant flow of weather forecasts are taking center stage.
IN THE WEEK AHEAD: