Market Trends: Futures Cotton Shows A Sideways Trend This Week How About Next Week

According to the news from foreign sources on September 22, the ICE 12 month cotton contract was in a sideways trend for most of this week (as of September 21). It was difficult to find the direction because the daily trading volume was light and there were few data for reference. The daily dynamics make the cotton market in a relatively narrow trading range for most of this week. The weekly crop growth report of the United States Department of Agriculture (USDA) showed that the situation of crop growth in the United States had slightly worsened, which pushed the market up slightly at the beginning of this week. Earlier this week, China's domestic prices were also high, which helped boost prices in the United States. The decision of the Federal Reserve on interest rates and the slightly tough hint of what is going to happen put pressure on prices before the end of this week. Finally, the disappointing export sales report released on Thursday forced cotton futures to close lower this week. As of the week ended September 21, the cotton futures contract in December closed at 86.47 cents/pound, down 133 points from the previous week. The total number of positions climbed to the highest level since November 2022, increasing by 7212 to 234967. ICE's deliverable cotton inventory has begun to increase, more than doubled compared with last week, reaching 20485 bales.

External market

The Federal Open Market Committee (FOMC) held a meeting this week, and as expected, the interest rate stabilized at a 22 year high of 5.25%. After the announcement of interest rates, Federal Reserve officials pointed out that interest rates might be raised by another 25 basis points before the end of the year, and interest rates would remain at a higher level for a longer time. This news is tough for the external market, and the stock market closed lower on Wednesday. On Thursday, the number of Americans applying for unemployment benefits for the first time fell to a nearly eight month low of 201000, which is another signal that the Federal Reserve continues to raise interest rates. US government bond yields hit a 16 year high, and the hawkish news from the Federal Reserve continued to support the US dollar. A stronger dollar is good for American importers, but not for cotton and other exports. The price of crude oil is still rising, but after the Federal Reserve announced its interest rate resolution on Wednesday, it fell back from the high reached at the beginning of this week. The United Auto Workers went on strike last Friday, and the negotiations barely made progress, which added pressure to the market. Finally, if Congress fails to find a solution to the federal government's funding problem before September 30, the government will shut down.

Export Sales Report

The tone of the export market has not changed since last week. Net sales increased, but demand for American cotton remained sluggish. The export sales report released by the US Department of Agriculture (USDA) on Thursday showed that in the week ending September 14, the net export sales of US cotton in the current year increased by 105800 bales, 57% more than the previous week, and 67% more than the average of the previous four weeks. In the next year, the net export sales of American cotton increased by 5100 bales.

Shipments increased this week, but still below the pace required by USDA's export estimates. In that week, 150700 bales of American cotton were shipped for export, 28% more than the previous week, and 15% less than the average of the previous four weeks, including 72700 bales for export to China. In the current year, 110500 bales of American cotton were newly sold. In the next year, American Cotton will sell 5100 bales.

Weather and crop growth rating

It is reported that there have been sporadic storms in West Texas, Oklahoma and Kansas in the past week. Considering the extremely dry conditions in the region throughout the summer, the precipitation is almost unhelpful for most crops. It is expected that the temperature and precipitation in this area will be higher than the average level in the next week. The US Department of Agriculture (USDA) announced in its weekly crop growth report that as of the week of September 17, the excellent rate of American cotton was 29%, 29% in the previous week and 33% in the same period last year. The crops continue to mature. The boll filling rate of American cotton is 55%, 43% the previous week, 58% the same period last year, and 52% the five-year average. More than half of the states have started harvesting. The harvest rate of American cotton was 9%, 8% the previous week, 11% the same period last year, and the five-year average was 10%.

Next week

The news about cotton is light this week, and it may be light next week. Traders will continue to focus on Monday's crop growth report, daily classification report, ICE deliverable inventory and Thursday's export sales report to understand the demand for American cotton. In view of the upcoming government shutdown and auto workers' strike, the external market will also be closely watched.