Howell: Cotton soars 12 cents from December low to start 2012 with bang


Aggressive speculative buying and intensified fund short-covering lifted cotton futures above highs of the previous six weeks against quickened farmer selling last week.

The market pared 2011 losses with a late December rally and opened 2012 with a bang as spot March surged the 400-point daily limit in brisk dealings in year’s first trading session.

March posted a 311-point gain to 94.74 cents on mainly technical factors and outside influences for the shortened trading week ended Thursday. New-crop December advanced 316 points to 90.98 cents.

March powered through layers of nearby resistance and its 50-day moving average on Tuesday and reached a high of 96.48 cents on Wednesday, up 12.13 cents or 14.4 percent from last month’s low. This was the highest price since Nov. 18 when the high was 97.74 cents.

Cash trading jumped to a marketing year high on The Seam’s grower-to-business exchange. Growers sold 44,027 bales over the four-day trading week, topping the prior high of 33,783 in the five-day week ended Dec. 1.

Prices advanced 214 points to an average of 87.99 cents, with daily averages ranging between 84.69 and 89.92 cents. Loan repayment rates on the turnover averaged 33.01 cents, down 68 points from the week before.

Spot cotton futures lost a whopping 36.6 percent in 2011, ending the year at 91.80 cents. Cotton was the worst-performing commodity of the year after ranking as second best in 2010, rising more than 90 percent.

The 19-commodity Reuters-Jefferies CRB index settled down 8.3 percent for the year, against a 17 percent gain in 2010 and a 23 percent rise in 2009. Corn futures gained 2.9 percent in 2011, soybeans lost 13.7 percent and Chicago wheat shed 17.8 percent.

Cotton soared to an all-time high of 227 cents in March and plunged to the year’s low at 84.35 cents on Dec. 14 after record high prices boosted world production and wrecked demand amid a shaky global economy. It is expected to lose ground to other acreage-competing crops in the United States and other key producing countries this year.

On the global 2011-12 cotton scene, almost 40 percent of the gain in stocks could take place in China owing to rebuilding of the national reserve, according to the International Cotton Advisory Committee.

China purchased 2.1 million metric tons (9.65 million bales) of domestic cotton for the reserve between Oct. 8 and Dec. 30, ICAC said. Purchases have continued. There’s no limit on the amount of domestic cotton the government may buy.

An additional million tons (about 4.6 million bales) of non-Chinese cotton have been purchased for the reserve, reports have indicated. Some could be sold later in the season.

Overall, the reserve could grow by at least 3 million tons (13.78 million bales) or 11 percent of the 2011-12 global production, ICAC said. Outside China, ICAC expects stocks to grow by 26 percent to 8.7 million tons (39.96 million bales), largest in four years.

The ICAC now projects 2011-12 global output to grow 8 percent from last season to 26.788 million tons (123.04 million bales), while mill use is expected to fall 2 percent to 23.866 million tons (109.62 million bales). The carryout is expected to climb 32 percent to 11.931 million tons (54.80 million bales).

Scant demand and ample supplies have pressured world values. The Cotlook A Index dropped from 114 cents in early August to 93 cents in late December, ICAC noted, pointing out the average of 109 cents for the first five months of the 2011-12 crop year was a third lower than the 2010-11 full-season average of 164 cents.

The widely followed index of world values rose 470 points from a week earlier to 100.35 cents Thursday morning. The premium to the prior day’s spot futures settlement narrowed 54 points to 4.43 cents. In general, a narrowing of the spread indicates a weakening of U.S. cotton’s competitive world price position.

On the U.S. crop scene, classing of upland cotton of 239,828 running bales during the week ended Dec. 29 brought the upland total for the season to 13,195,627 running bales. Tenderable cotton totaled 67.3 percent for the season, up from 65.1 percent a year ago.

Counting Pima, all-cotton classing reached 13,719,154 running bales, down about 15 percent from 16,170,483 a year earlier.

Converted to statistical bales, all-cotton classing amounted to about 14.13 million or about 89 percent of the Dec. 1 crop estimate. A year ago, classing totaled 16.66 million statistical bales or about 92 percent of final production. Classing figures would indicate USDA’s December crop estimate, down 12.5 percent from last season, is overstated.

On the foreign crop scene, output in India, the world’s second largest cotton producer, is forecast at 34.25 million 170 kilogram bales or 26.75 million 480-pound bales, the U.S. agricultural attaché reported.

This is 750,000 statistical 480-pound bales below USDA’s December estimate but is still up from 25.4 million bales produced in 2010-11. Ag attaché reports are not official USDA data.

Updated USDA supply-demand estimates will be released on Thursday. The USDA’s December global estimates put the crop at 123.4 million bales, up 7 percent from a year ago and still a record high, and pegged mill use at 111.3 million bales, down 2.5 percent.

Meanwhile, speculators boosted their net long cotton futures position by 4.8 percentage points to 5.4 percent of the open interest during the week ended Dec. 30, exchange data showed.

The specs owned 42.5 percent of the longs, up 3.7 points, and 37.1 percent of the shorts, down 1.1 points. They increased longs by 6,109 lots and decreased shorts by 1,303 lots, raising their net longs by 7,412 lots to 8,327. Their outright holdings rose to 64,732 longs and fell to 56,405 shorts.

Commercials added 2,271 short hedges, hiking those to 95,739 lots, and lifted 5,141 long hedges, reducing those to 87,412 lots.