2017-09-13 / Farm & Ranch

COTTON MARKET WEEKLY

Weather drives cotton futures higher

September 8, 2017

As if the uncertainty of Harvey’s damage was not it, Hurricane Irma has kept the market in near panic this week. Irma, which has tied the record for the largest hurricane ever observed in the Atlantic Ocean, set its sights set on the U.S. Futures Spike Higher

Cotton traders have been intensely focused on the Hurricane. Last weekend, forecasts called for the eye to ravage eastern Georgia and the Carolinas, which have already suffered terrible weather losses in recent years. The threat to the region’s crops immediately impacted Tuesday’s trading following the Labor Day holiday as futures prices spiked higher. The week’s low was set on the first trade at 72.00 cents per pound, and December futures settled at 74.88 that day, which was limit up, or the maximum price increase that the exchange allows in one session. Although prices moderated some over the next two sessions, futures rallied today and touched 75.75 cents, which happens to be the highest price that December 2017 futures have ever traded. Volume was high, and new positions climbed rapidly. Total open interest, which measures the number of open contracts in the entire market, climbed over 15,000 to 241,118, the highest level since early June. Export Sales Respectable

Although Hurricane Irma clearly has been the market’s central focus, several other factors are influencing the market. For one, export demand maintained a respectable level last week despite rising prices. U.S. exporters sold 116,100 bales of upland cotton for shipment in the 2017- 18 marketing year and another 43,100 for shipment in 2018-19. Combined outstanding export sales for this marketing year and next are at the highest ever for this stage of the marketing year, and the fact that such a large portion of the crop is already committed definitely is magnifying the impact of the weather risks. Hurricane losses could leave many merchants with less cotton than they need to make delivery, or they could receive worse qualities than they have committed. In trader terms, the hurricane could leave many traders unexpectedly short at higher prices. Cheaper Dollar Good for Exports

The rapid devaluation of the U.S. dollar also has affected commodity markets. The U.S Dollar Index, which values the dollar against a specific mix of other currencies, is at its lowest since January 2015. Theoretically, this is good for U. S. exports since a single unit of foreign currency buys more dollars and, therefore, more dollar denominated goods. Agricultural products are a major component of U.S. exports, and the declining dollar is helping those products compete. Mill Demand Muted

Although demand has remained healthy and the dollar is making U.S cotton more attractive, the rapid increase in prices has decreased mill demand for now. Most of the world’s traders and buyers will spend the next several days with full attention on Hurricane Irma trying to ascertain whether the Southeast will be spared. Unfortunately, the most recent forecasts have the hurricane heading straight into the heart of Georgia cotton acreage Monday morning, which means that significant damage and lingering uncertainty are the most likely outcomes for the weekend. While the usual crop progress and export sales reports will continue to get attention, Irma rightfully has received almost exclusive focus.

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