May 28, 2021
Quiet Futures Market This Week, Traders’ Attention Still Focused on Weather
It was a fairly quiet week for the futures market. While market prices did surge off last week’s low on Friday, the rest of the week’s trading activity failed to escape Friday’s range. July futures finished the week at 82.61 cents per pound, up 108 points for the week. December futures outperformed July again, gaining 147 points to settle at 83.46 cents. Trading volumes were rather tepid, but that is likely to change with the switch from July futures to December futures just around the corner. Open interest has been transferring from the July contract to the December contract at a steady clip, but the total number of open contracts is only marginally higher than last week at 223,052.
Cotton was surprisingly immune to broader market gyrations this week. Grain markets fell sharply in on seasonal weakness, South American rains, and headlines about Chinese authorities cracking down on commodity speculation and trying to get their local commodity prices in line. Despite the headlines, grains finished the week with a strong rally that recouped losses. U.S. economic data was also quite strong this week, with jobless claims continuing to fall. Higher than expected price indices were overshadowed by higher personal consumption and the good jobs figures. Investors were more comforted that the Federal Reserve will take its time in raising rates and focused instead on encouraging signs of demand.
Export sales continued to creep higher this week as mills take advantage of lower prices. U.S. exporters were able to book net new sales of 171,200 Upland bales for this marketing year and 92,400 for next. Pima sales were 12,700 bales. On top of all that, combined Pima and Upland export shipments were 341,000 bales. Total exports for the season have continued to make records, leaving the USDA’s increased export target (16.25 million 480-pound bales) comfortably within reach. Sales for next marketing year remain relatively low compared to recent years, but many traders expect new crop sales to pick up soon.
Crop Progress and Weather
Cotton planting was a little bit behind at the start of the week. As of last Sunday, 49% of expected cotton acreage had been planted, which is three percentage points behind the five-year average. Mid-south states were able to do some catching up but Texas fell a little further behind. We are likely to see similar advances and delays on Tuesday’s report. The weather pattern was certainly similar and looks like it will continue next week as well. Most of the moisture received in the Southwest has come by way of severe storms that have also brought hail and locally heavy precipitation, leaving some fields flooded as the planting deadlines approach. Southeast states have unfortunately suffered a lack of moisture and high temps as a high-pressure system has parked over the Carolinas. Unfortunately, weather across the belt has flipped from one extreme to the other.
The Week Ahead
Traders have already become more concerned with December futures than July, but closing out July positions will still demand a great deal of cash traders’ attention over the next few weeks. Index Funds and speculative traders will be focused on rolling positions forward while merchants will be focused on selling the last bits of their old crop cotton and taking care of mill fixations. While not worrying about closing out July, traders of all sort will continue to watch the weather and weekly export sales.
In The Week Ahead