2017-07-12 / Farm & Ranch

COTTON MARKET WEEKLY

Export Sales report pushes market

July 7, 2017

Independence Day shortened the trading week for cotton fu- tures and delayed the release of market information from the USDA. Price activity largely overlapped the previous week’s trad ing range. December futures reversed direction from Friday’s rally and continued lower when trading resumed Wednesday. After touching a low of 66.55, the market found its footing. Following the release of the Export Sales Report (more on that below), December futures pushed upward, and the highest traded price on Friday was 68.92.

Crop Conditions Decline Slightly in Texas and Oklahoma

Although most of this region received more beneficial rains than expected last weekend, hail and wind came with it. Wind gusts exceeded 80 mph, and the extent of the damage is hard to tell at this point. Additionally, this week’s Crop Progress and Conditions Report showed another slip in the crop’s condition. Across the 15 largest cotton producing states, the percentage of the crop that was rated “good” or “excellent” fell three points to 54 percent. Texas cotton’s share in good or excellent condition slipped five points to 41 percent. OklahomaĆ­s condition also slipped four points, but is still at 72 percent, while the Kansas crop rating improved four points to 81 percent in good or excellent condition. Progress is slightly ahead of pace with 45 percent of the U.S. crop squaring versus a five-year average of 44 percent. However, development is expected to fall behind in coming weeks as the figures begin to reflect how late the second half of the crop was planted (or replanted). While still an average crop, the Crop Progress Reports have begun to cast doubt on the relatively high production estimates that were widely disseminated early in the season.

Export Sales Remain Strong

On the demand side of the equation, U.S. cotton continues to find a home in the export markets even before the 2017-18 (August 1, 2017 through July 31, 2018) marketing year has begun. Delayed by Independence Day celebration, the USDA released the Export Sales Report on Friday morning. The report showed new orders for 491,400 bales of Upland cotton in the week ending on June 29. The pace of export sales has been excellent and the U.S. is set to begin the 2017-18 marketing year with the highest amount of sales since 2011-12. At this point, it seems likely that the USDA will have to revise its estimate of 2016-17 exports higher, which will result in lower supply for next year.

Looking Ahead

Next week, traders’ focus will fall mostly on the July 12 release of the next World Agricultural Supply and Demand Estimates (WASDE) Report, when the USDA updates its estimates of global commodity crop production, supply, trade, and consumption. The June 30 acreage report, which showed lower plantings than the March Prospective Plantings report, may reduce the crop forecast but it is unusual for the USDA to alter its U.S. crop estimate on the July report. Nevertheless, surprising revisions to foreign production, exports, and beginning stocks are not uncommon. Last July’s large revision to U.S. exports kicked off the 2016- 17 rally, which began with a price movement from 66.00 cents to 78.00 cents and back over the following weeks. Needless to say, traders pay close attention as the WASDE figures are released.

Beside the WASDE report, market participants will continue to monitor Crop Progress for any additional signs of deterioration. Export Sales report will continue to be scrutinized, too, as the market has not yet found the price level that will slow demand. Major reports will be back on their regular schedule next week.

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