COTTON MARKET REGAINS SOME STRENGTH, DECEMBER FUTURES ADVANCE 127 POINTS
Weather was the most obvious factor this week as widespread rain fell on much of the Texas High and Rolling Plains with some locations reporting more than 4.0 inches of precipitation in a 48-hour period. The general consensus was the moisture and accompanying cooler temperatures were timely and beneficial for the regions’ cotton crops. Additional rainfall is in the forecast for this weekend and into next week.
IMPROVED CONDITIONS HAVE LITTLE IMPACT ON FUTURES PRICES
Normally, improved crop conditions would weigh on cotton prices; however, futures traded at the Intercontinental Exchange actually settled higher three consecutive sessions after the rain in West Texas began. Supportive factors most likely were tight nearby supplies, a weaker dollar, and speculative short covering. Ahead of the rain, USDA’s Crop Progress and Condition report showed the crop was holding steady.
For the week ended July 30, the department reported 56 percent of the U.S. crop was rated good or excellent, up one percentage point from the previous week. USDA also reported 30 percent of the crop was rated fair, down from 33 percent the previous week, and 14 percent was rated poor or very poor, up from 12 percent. States where conditions declined were Texas, South Carolina, Tennessee, and Virginia. States showing improvement were Oklahoma, North Carolina, Mississippi, Louisiana, Arizona, and Alabama. It will be interesting to see if USDA will show an improvement in the Texas crop in the next report.
Traders also continued to talk about the recent flooding in India’s Gujarat state and its impact on the cotton crop. They noted additional rain there early this past weekend, but the extent of crop damage remains unclear.
LATEST WEEKLY EXPORT REPORT DISAPPOINTS SOME
Export sales cancellations in the week ended July 27 resulted in a net reduction of 55,700 Upland running bales for the 2016-17 marketing year, according to USDA. Rather than a sign of market weakness, the cancellations may have come from shippers due to a lack of available supplies of U.S. cotton because it would be unlikely for textile mills in 18 countries to suddenly cancel in a week when cotton prices were little changed. Furthermore, USDA reported excellent export shipments totaling 275,300 bales destined to those 18 countries plus seven more. The department also reported net export sales of 126,500 running bales that week for delivery in the 2017-18 marketing year that began Aug. 1. Featured buyers were South Korea, Mexico, Vietnam, and Bangladesh.
SUPPLY AND DEMAND ESTIMATES EAGERLY AWAITED
Meanwhile, much of the trade is anxious to see USDA’s August World Agricultural Supply and Demand Estimates (WASDE) report next week. The report will show state-by-state numbers for the 2017 crop.
IN THE WEEK AHEAD:
The Crop Progress Report will be released Monday at 3:00 p.m. CDT
The Export Sales Report will be released Thursday at 7:30 a.m. CDT
USDA’s WASDE Report will be released Thursday at 11:00 a.m. CDT
The CFTC Cotton On-Call Report will be released Thursday at 2:30 p.m. CDT
The CFTC Commitments-of-Traders Report will be released Friday at 2:30 p.m. CDT
FRIDAY, JULY 28
Cotton futures traded in a two-sided affair in a light volume session and settled slightly lower. Front months were affected most by a lack of buying and speculative selling. December cotton reached a low of 68.31 cents per pound, but buyers returned and lifted the contract off its low. December settled at 68.80 cents, down 9 points. All other contracts settled with moderate losses.
MONDAY, JULY 31
Despite late-session selling, futures managed to post small gains as the month of July was coming to an end. December started the day slowly and in a narrow trading range, but buying lifted it to a high of 69.70 cents. Selling then dropped the contract back to the middle of its 120-point range, and it settled at 68.86, up 6 points.
TUESDAY, AUGUST 1
The market showed additional strength on suspected index buying and fresh export inquiry as the new month began. December cotton slowly moved higher before selling resumed, but the contract returned to positive ground and near the top of its 114-point range. December settled 45 points higher at 69.31 cents.
WEDNESDAY, AUGUST 2
The rally continued for a third consecutive session, and futures contracts settled with better gains than the previous day. December was trading in a narrow range early in the session before buyers helped move it to a high of 70.40 cents, its highest since mid-June. The contract settled near the top of its 118-point range at 70.34, up 103 points. A weaker dollar, tight old-crop supplies and uncertainty about India’s crop conditions contributed to the market’s strength.
THURSDAY, AUGUST 3
Increased selling pressure kept nearby cotton futures on the defensive during most of the final session of the marketing week. December cotton initially traded higher then on both sides of unchanged. The contract settled 18 points lower at 70.16 cents per pound.