The cotton market seesawed all session as traders and hedgers prepped themselves for Thursday’s weekly sales and exports, as well as Sunday’s potential tariff announcement by President Trump. Currently, the market is being supported by Tuesday’s crop report, which saw another large cut to the U.S. crop, as well as lower domestic and world carryout.
However, a disturbing part of the crop report was the cut in global consumption, suggesting demand is waning. Still, the overarching fundamental relates to the President’s decision regarding the implementation of new tariffs on China. It is widely thought that if the U.S. presses China with additional import duties, then the momentum to construct a trade deal will be lost.
At 2 p.m. Wednesday, the Federal Reserve made its announcement regarding interest rates. As expected rates were kept unchanged. Following the Fed’s interest rate call, the U.S. dollar trade slightly lower. The height of the U.S. dollar has been a longstanding bearish fundamental towards cotton. Nonetheless, current season cotton sales are higher than USDA’s forecast, and higher than its the five-year average.
With a few weeks before 2019 flows into 2020, March cotton is down 8.35 cents for the year. While not an indicator of what the market will, or will not do in 2020, it is noteworthy prices are entering the new year some 20 cents below the entry level from 2018 to 2019. Subsequently, having such low prices may indeed affect the planting mix across the cotton belt. In other words, alternative crops such as peanuts, soybeans, and grain sorghum stands to compete for acres, unless there is a dramatic rise in new crop cotton futures.
For Wednesday, March cotton settled at 65.88 cents, down 0.05 cent, July ended at 67.75 cents, up 0.16 cent and December finished at 67.87 cents, up 0.08 cent. Estimated volume was 21,144 contracts.