Howell: Cotton futures manage slight gains amid scale mill buying


Scale-down mill fixations and commercial buying have countered commission house selling as cotton futures chopped within mostly a sideways pattern after a somewhat “less bearish” USDA supply-demand outlook.

Benchmark May managed a slight 44-point gain for the week ended Thursday to close at 89.67 cents, near the low of its 328-point range from 92.74 — just a few points shy of its 60-day moving average — to 89.46 cents. It came into March having lost 4.9 percent in February.

New-crop December gained 88 points to 90.88 cents after posting its lowest close of the calendar year a week earlier. Prospects for increased U.S. and world ending stocks next season despite prospective planting cuts kept a lid on the market.

Cash grower sales rose to 16,775 bales from 13,106 bales the prior week on The Seam. Prices gained 79 points to an average of 83.43 cents, while premiums over loan redemption rates fell 20 points to 30.32 cents. Daily price averages ranged from 76.61 to 85.27 cents.

With 22 weeks left in the crop year, U.S. 2011-12 export commitments rose to 10.937 million running bales, 102.5 percent of the USDA estimate, on net weekly sales of 81,300 bales. Net new-crop sales of only 2,300 running bales brought 2012-13 bookings to 589,200 bales.

Strong shipments of 320,900 running bales lifted exports for the season to 5.125 million, 48 percent of the USDA estimate. Shipments of roughly 252,000 running bales a week are needed to achieve the forecast.

In updated estimates at its Outlook Forum, USDA analysts said U.S. growers are expected to plant 13.2 million acres of all cotton this spring, down about 10 percent from last season’s 14.73 million acres.

The USDA has begun surveying growers and will release results on prospective plantings on March 30. The National Cotton Council’s early intentions survey showed growers planned a 7.5 percent cut in cotton acres. The council foresaw a new crop of 18.3 million bales.

Projecting harvested acres at 10.5 million, up from 9.75 million this season, USDA figured yields at 777 pounds, up from 772 pounds, for a crop of 17 million bales, up from 15.67 million. The yield is down from the five-year average of 822 pounds coming into this season.

The USDA forecast domestic mill use unchanged from this season at 5.3 million bales, exports up a million bales to 12 million and ending stocks up 1.5 million bales to 5.3 million. This would mean a stocks-to-use ratio of 34.2 percent, up from 26.2 percent estimated for this season.

“While foreign import demand is expected to rise to its highest level in five seasons, the United States also will face increased competition,” USDA said. The forecasts show the U.S. share of global trade rising to 31 percent, still the second lowest since 2000-01.

Globally, USDA projected consumption at 114.5 million bales, up 4 percent, and forecast production down 4 percent to 118.5 million bales.

“Declining world cotton prices will enable cotton to regain competitive advantage with respect to other fibers in 2012-13,” USDA said. “A significant portion of the decline in cotton consumption in recent years has been a shift to competing fibers, mainly polyester.”

Ending stocks still would climb 7 percent from this season to 64.8 million bales, USDA said. This would reflect a stocks-to-use ratio of 56.6 percent, up from 55.5 percent estimated for 2011-12.

China’s cotton imports are expected to fall 1 million bales to 16 million, USDA said. Its support price, which was expected to remain above world prices, “is likely to constrain consumption growth and support demand for imported raw cotton and yarn as well as synthetic fibers.”

The USDA estimated China’s crop at 30.5 million bales, mill use at 45 million bales and ending stocks at 19.5 million bales. For this season, the crop is estimated at 33.5 million bales, mill use at 44 million bales and stocks at 18.05 million bales.

Smaller plantings are expected in China, India, Pakistan, Brazil, Central Asia and Australia, which produce 70 percent of global output.

Uncertainties inherently linked to early season projections are exacerbated by unknowns associated with the further accumulation and-or release of reserve stocks by China, USDA analysts observed.

Later, China announced a 3 percent increase to 20,400 yuan ($3,200) per metric ton in the procurement price the government will pay farmers this year for cotton for the reserves. The increase had been expected.

The action was described as an effort to stabilize shrinking cotton area and forestall bigger imports in 2012-13. Recent estimates within China had indicated growers planned to reduce the cotton area by about 6 percent to around 10 percent.

An already extreme gap between domestic prices and higher world values is expected to widen. Chinese mills which export their products and have access to import quotas for raw cotton would seem likely to purchase attractively priced outside growths.

China’s Zhengzhou cotton futures finished mostly higher the day of the announcement, prices on the China National Cotton Exchange closed mixed and the China Cotton Index dropped 2 yuan to 19,606 yuan per ton or 141.26 cents per pound.

The CCI stood a whopping 50.82 cents over the U.S. May futures settlement at the time. Many have wondered how Chinese mills are able to cope with such a huge difference.

A possible explanation is that Chinese mills don’t face much competition in selling finished goods within China and can pass on to domestic consumers the higher local price on the estimated 25 million bales used to make products consumed internally, a trade analyst says.

The other 19 million bales of textile products sent into export markets must be made from lower-priced cotton to be competitive, he explained. This is achieved via imports of cotton and yarn bought at international prices.