2019-01-09 / Farm & Ranch


After moving lower, futures rally at week’s end

January 4, 2018

Cotton futures dipped to fresh lows this week. The shortened trading week and lack of commodity specific data did little to hamper selling activity, and daily volumes were relatively high for the first three sessions of 2019. March futures plunged to 70.65 cents per pound Thursday during the continued heavy selling. However, prices managed to rally sharply Friday, mostly on the back of good economic data in the December jobs report. Prices touched 73.37 cents and settled at 72.52 cents per pound. Open interest has climbed 5,493 contracts to 218,338, implying new positions in the market as prices fell. Jobs Report Counters Negative Influences

Broader market sentiment and the macroeconomic outlook continue to have a larger than usual influence on cotton futures. The stockmarkets continued to whipsaw investors.

Negative earnings guidance from Apple, on lower iPhone sales in China, pushed stock indexes sharply lower on Friday, but Friday’s excellent December jobs report countered the negativity. The U.S. added 312,000 jobs in December, while October and November jobs were revised higher. Stocks jumped higher on the news, which helped lift commodities as well. Will Fed Lower Interest Rates?

Markets also got a boost from a slightly more accommodative tone from Federal Reserve Chairman Jerome Powell. Marketbased expectations for Federal rate changes in 2019 have already started to point to greater chances of decreases than increases, and the fact that unemployment ticked 0.2 percent higher to 3.9 percent (through increased labor force participation) in December gives the Fed slightly more room to alter its course. Key Reports

USDA has published its decision to delay release of key monthly reports for January because funding still is not available for the “non-essential” staff that publish these reports. Unfortunately, most government employees have been laid-off until the shutdown is resolved. Resulting in the absence of weekly export sales reports, cotton on-call reports, commitments-of-traders, crop production, or WASDE reports for now. Furthermore, as of today, the CCC loan program has been closed. Cotton classing is fee-based and daily and weekly classing reports are still being issued. This week, USDA classing offices processed 728,278 samples bringing the season total to 14,154,535. Demand Seems to Improve

This week’s drop below 71.00 cents seems to have rejuvenated demand. International traders have seen good volumes of new fixed-price sales, in addition to active mill fixations. Unfortunately, without the weekly government reports, it is not easy to gauge the volume of sales, much less how much U.S. cotton has been booked. What we do know is Indian cotton has become uncompetitive. Prices there have not fallen with the U.S. futures market due to the government’s high minimum support price (MSP).

Mills that are usually dependent on Indian cotton, even within India, are taking advantage of cheaper international offers. Short Term Influences

The outcome of the government shutdown standoff, trade dispute resolution, anticipated Federal Reserve policy, and stock market performance are likely to be more predictive of cotton performance than anything else in the near term. Until USDA and CFTC reports begin to flow again, cotton specific fundamental data is in short supply. International merchants are likely to adjust their positions only as the flow of their business demands, leaving most of the intra-day action in the hands of speculators. In short, headlines will get the majority of trader attention in the week ahead.

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