• People Collecting Jobless Benefits at Lowest Level Since 1970
• India Largest Buyer of Old Crop
• Below Normal Rainfall Likely This Season
• Weather and Crop Progress are Becoming More Important
May futures have nearly run their course, so our attention turns to the July contract for the next several weeks. Despite a fresh life-of-contract high close on Monday at 143.25 cents per pound, July futures spent most of the week moving lower. The decline was in sympathy with the broader commodity complex selling, but also reflected some pessimism about the cotton market in China as well. July futures settled at 137.89 cents Thursday, down 282 points for the week. Futures volume was heavy Tuesday as prices fell sharply, but volumes were much lower otherwise. Open interest continued to decline as it appears that longs began to reduce their positions. The total number of open contracts fell 15,306 to just 206,774, which is the lowest level since last June.
Outside Markets
Major stocks indices traded higher to start the week but were basically back to where they started the week by Thursday’s close. Economic news was fairly light and for the most part, better than expected. Most notably, housing starts and building permits actually rose despite higher interest rates and the number of people collecting jobless benefits fell to the lowest levels since 1970. Unfortunately, the markets fear good news more than bad news at the moment because this sort of good news gives the Federal Reserve even more room to hike rates faster. That makes slips like Netflix’s first-ever loss of subscribers even more perilous, with that stock falling over 35% on Wednesday. Stock shocks aside, Russia’s war in Ukraine and China’s “Zero Covid” strategies continued to roil markets as well.
Export Sales
The Export Sales Report appeared to be on repeat this week, with the exception of cancellations from China. Old crop Upland net sales were 50,500 bales, while new crop Upland sales were 136,100. India was the largest buyer of old crop at 33,000 bales, and Turkey was the largest buyer for next year with 48,400. There were also new sales of 132,000 bales to Pakistan for the 2023/2024 marketing year. Despite severe tightness, Pima sales were 3,800 bales of old crop and 5,500 bales of new crop. Combined shipmentswere healthy at 381,800 bales. Although demand for old crop has slowed somewhat, the availability and logistics still appear to be the main constraint. Interest in new crop remains strong.
Weather and Crop
We’ve had a few overcast days and felt some humidity this week, but that is about as close to rainfall as most of the West Texas area got this week. There are some chances of storms in the next few days, but the expected quantities of precipitation are very low. As May and June are the closest thing to a “rainy season” that we get, we expect some sort of rainfall in the next two months, but the latest seasonal outlooks show strong odds that we’ll have below normal rainfall and above normal temperatures. Production forecasts are not optimistic.
The Week Ahead
As the May contract is all but done, and there are no major reports due next week, cotton trading should be fairly “normal”. Weather and planting progress are taking up a larger and larger portion of traders’ thoughts, so daily forecasts and the weekly Crop Progress Report are increasingly important. The weekly Export Sales Report will continue to be a central focus as traders consider whether prices have been able to find the level that will ration demand.