The US Department of Agriculture will release new numbers for the US and world cotton production on Wednesday. Analysts in a Bloomberg survey expect little change versus the report from the prior month, which already pointed to growing world cotton consumption. 

On the supply side, the cotton futures market is concerned about the condition of the US crop and the yield potential for the new marketing year, said Walter Kunisch, senior commodity market strategist at Hilltop Securities Inc. Heat in US top producer Texas creates challenges for the crop development, he said. 

In other markets, raw sugar gained following the release of data on the declining quality for sugar-cane crops in top exporter Brazil. Arabica coffee fell, narrowing its premium over robusta as the pace of Brazil’s harvest increases and El Niño threatens Vietnam’s production of the cheaper beans.    

Eoin Treacy's view

The big surprise for my family, in driving the 1100 miles to Phoenix and home again to Dallas, was how green the desert is. When we first completed that drive in May 2021, during our migration out of California, the landscape was barren. The California and Texas droughts had leeched moisture from the landscape. This time, the topography was much more appealing despite high temperatures.

This spring/summer has also been much wetter in northern Texas than last year. There are developing drought conditions in the centre of the corn belt but much of the rest of the USA has seen ample moisture this year. https://droughtmonitor.unl.edu/

Corn has been subject to some incredible volatility over the last month as it collapsed from around 630¢ to 500¢ in less than two weeks. The price has stabilised over the last week but a breakout from the short-term range will be required to confirm a return to demand dominance.

Cotton has been developing base formation, mostly above the 80 level since October. This level also represents the upper side of the underlying base formation. A sustained move above the 200-day MA, near 85¢ will be required to confirm return to demand dominance.

While in Phoenix I had the chance to catch up with an old friend who has garment manufacturing factories in Los Angeles and Mexico. He reported business was challenging for several reasons.

The first is Shein is nibbling at the margins of the garment business. Purchase patterns have changed and the youngest generation are not as excited about buying clothes as previous ones.

The second is the target demographic for the skimpy items he manufactures often rely on making the minimum payment on their credit card to fund their lifestyles. The end of stimulus and the highest credit card rates in decades are a drag.

The last is how the pandemic affected seasonal sales. Many stores have seasonal inventory they are trying to sell but no one buys fall colours in spring.  

The slowdown in China, with prices breaking lower at the factory door suggests the route to higher cotton prices will be in stimulus.