September 17, 2021
Export Sales Show Demand is Still Strong
December cotton futures dove as low as 92.01 cents per pound after the release of last Friday’s WASDE report, but were able to finish the day with a slight gain. From Monday on, the market was a bit more confused about what direction to trade. December futures actually kept entirely within last Friday’s trading range between 92.01 and 94.11 cents. While volume was actually very strong last Friday, activity was relatively slow for the rest of this week. Open interest also flattened out as traders seem to be waiting for the market to make its next move, losing just 505 contracts to stand at 273,386. Prices returned to the lower end of the week’s range on Thursday and December settled at 92.51, down 71 points for the week.
Outside markets were mixed this week. Stocks moved sideways from last week’s decline. Concerns about shipping costs and the continued negative effects from the Delta variant kept markets on edge. China’s economic data also showed how their COVID containment strategy had hampered retail sales and economic output, all while their government is attempting to rein in property market speculation. The heightened risk from China was a shadow over the market until Thursday, when the market saw a surprise jump in U.S. August retail sales despite analysts’ expectations of a decline. With U.S. spending on solid ground, the U.S. Dollar rallied to a three week high causing some temporary pressure on dollar denominated commodities including cotton.
Export sales were strong again this week. Net new Upland sales for 2021/2022 totaled 284,800 bales. China was a large buyer again with a net increase of 183,900 bales, followed by Pakistan with 33,800 and Turkey with 17,600. Pima sales were also healthy with 9,600 bales to eight destinations. Impressively, exports were actually the second best ever for the sixth week of the marketing year despite starting the year with low stocks. Cotton is moving quickly giving evidence of mills desire for prompt shipment, and continuation of healthy sales indicates demand is still strong.
Crop Progress and Weather
Above average temperatures have helped the West Texas crop catch up in development over the past few weeks. Unfortunately, many of the spots that were not fortunate enough to catch last month’s rains have gone backwards in overall health. In fact, the last thirty days were nearly the driest on record for much of the Rolling Plains. Although there are some chances of isolated storms over the weekend, it looks like most of this region is likely to stay dry for the next few weeks. The opposite is true for the Mid-South and southern Atlantic states. Not only were they drenched by the tropical storm Nicholas, which narrowly missed an open South Texas crop, but the Mid-South is likely to continue getting precipitation and highs in the eighties for the next several days. Although little if anything is defoliated in the regions to be soaked (with the exception of Louisiana), the latest crop progress report had 40% of the Mid-South and Southeast crop opening bolls, and the rain is less welcome with each day that passes.
The Week Ahead
Classing reports and weather are the key daily items that traders will be watching next week. Waiting for the South Texas crop to come has been trying for many traders that would have liked to have it available several weeks ago. Crop Progress and Condition will show a bit more of how much cotton is opening and whether the weather is hurting yield and quality potential. Lastly, the export sales report will be a central focus as the market deciphers whether this week’s drop to 92 cents was enough to spur additional demand.
In the Week Ahead: