WASDE REPORT SENDS COTTON MARKET TUMBLING
Although December futures had traded to a higher high of 71.20 cents per pound Tuesday, Thursday’s trading pulled futures down by the maximum daily limit, 300 points, to settle at 68.11. The final export sales report for the 2016-17 marketing year and USDA’s August crop production, which includes the first release of state and district level estimates, generated heavy trading volume. The USDA data surprised the cotton futures market this week, and there is not much point in discussing anything else.
PRODUCTION INCREASED BY 1.55 MILLION BALES
USDA revised U.S. production significantly higher, shocking traders. On average, cotton market analysts had expected the crop estimate to come down 200,000 bales; nevertheless, the report actually increased expected production by 1.55 million bales, bringing total U.S. productions to 20.55 million statistical bales (i.e. converting to 480-pound bales) for 2017-18. In the state-level estimates, USDA did put its acreage abandonment projection for Texas as a whole at 13.6 percent, and forecast a statewide yield of 741 pounds per harvested acre, which set total state production at 8.8 million bales.
Additionally, FSA released certified acres information, which showed Texas Upland planted acres, including acres that later were failed, at 6.807 million, 207,000 acres higher than the June 30 acreage report. Without perfect knowledge of the future, it is impossible to say whether USDA is right or wrong about Texas production, let alone U.S. and world production. Final production is, as always, dependent on the weather.
U.S. EXPORTS RAISED
The large crop revision overshadowed important changes to U.S. exports. First, 2017-18 exports were revised 700,000 bales higher to 14.2 million based on the larger expected crop and strong sales commitments U.S. exporters have already made. Thursday morning also saw the release of the final 2016-17 weekly export sales report. Based on the end of marketing year data, USDA increased 2016-17 U.S. exports to 14.92 million bales, up 420,000 from the July report. Higher exports for 2016-17 mean lower beginning stocks for this year. Despite higher production, the net effect increased U.S. ending stocks 500,000 bales to 5.8 million.
OTHER FACTORS AFFECT THE MARKET
While USDA’s WASDE estimates surprised the market and sparked a sell off, it is important to note that markets already were trading lower. Financial jitters and fears about possible conflict with North Korea were pushing everything but gold, silver and U.S. treasury bonds, bills, and notes lower. On the other hand, mill demand for U.S. cotton is likely to remain strong as lower prices uncover greater demand and the U.S. dollar remains relatively cheap versus foreign currencies.
MONITORING THE WEATHER
With the August WASDE report behind them, market watchers will continue to monitor weather, especially in West Texas. Crop progress and condition are still central concerns, too. At least partially, daily classing reports from South Texas are starting to occupy traders’ attention, but the market will probably spend the next several weeks looking to validate or invalidate the data that took it by surprise.
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
The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. CDT
The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. CDT
FRIDAY, AUG. 4
December cotton futures found renewed strength to start the marketing week and stayed on positive ground most of the session at the Intercontinental Exchange (ICE). The contract reached a high of 70.83 cents per pound despite a lack of fresh news and settled at 70.62, up 46 points after trading in a narrow, 62-point range.
MONDAY, AUG. 7
The momentum continued following the weekend as ICE cotton futures traded higher most of the session. Most nearby contracts settled 14 to 23 points higher in a rather quiet ICE session. The exception was December cotton, which settled 7 points lower when late selling pressure emerged.
TUESDAY, AUG. 8
December cotton again found strength and gradually moved higher throughout the session. Position squaring ahead of USDA’s World Agricultural Supply and Demand Estimates report, an improving technical picture and continued decline in certificated stocks were thought to be supportive for the cotton market. December settled at 71.13 cents, up 58 points.
WEDNESDAY, AUG. 9
ICE cotton futures spent the day consolidating and settled with marginal losses across the board. December cotton traded lower most of the session after meeting resistance. The contract fell to a low of 70.41 cents, but light buying moved it back to near unchanged. December settled at 71.11 cents, down 2 points and near the top of its 79-point range.
THURSDAY, AUG. 10
As noted earlier, cotton futures fell sharply following the release of the WASDE report. Selling pressure quickly increased, and December reached a low of 68.11 cents per pound where it settled, down 300 points and its lowest since July 24. All other futures contracts settled with triple-digit losses.