Fresh buying boosts cotton market as supply concerns mount


Fresh buying has lifted cotton futures to about a five-week high close amid positioning ahead of USDA’s updated supply-demand estimates for 2012-13 and the first official forecasts for 2013-14.

Spot July gained 224 points for the week ended Thursday to close at 87.92 cents, its highest finish since April 5. It closed above its 40-day and 50-day moving averages after its nine-day moving average crossed early in the week above the 18-day average.

A 50 percent retracement of the 1,136-point skid from July’s 94.20 high on March 15 to the April 24 low would be 88.52. Open interest climbed 10,420 lots to 177,523, with July’s up 7,459 lots to 111,427.

The May contract expired 148 points below July at midweek, settling at 86.20 cents, while new-crop December advanced 254 points on the week to finish at 87.01 cents.

Concerns mounted that a small prospective early crop in South Texas combined with delayed U.S. plantings and fast-paced export sales and shipments could prompt a supply scramble ahead of the volume movement of the new crop. Dryness in the West Texas Plains contributed to the gains.

The USDA was expected to raise the U.S. 2012-13 export forecast and modestly hike this season’s production estimate in its supply-demand reports on Friday, May 10. The spotlight, though, was to focus on the first official estimates for 2013-14.

Cash grower sales dwindled to 406 bales on The Seam from 2,506 bales the week before. Prices averaged 83.18 cents, up from 78.67cents, reflecting premiums over loan repayment rates of 30.37 cents, up from 25.44 cents.

U.S. export sales for delivery this season slowed to 118,600 running bales during the week ended May 2 from 324,000 bales the prior week, but commitments still widened the lead over year-ago bookings to 988,900 bales. Commitments stand slightly above USDA’s April estimate.

Shipments dipped to 297,700 running bales from 379,700 bales. This boosted exports for the season to 9.986 million bales, topping shipments a year ago by 1.546 million bales or 18 percent.

Exports have reached 79 percent of the April forecast, compared with 74 percent of final shipments at the corresponding point last season. To achieve the forecast, shipments need to average roughly 135,400 running bales a week.

New-crop sales of 84,000 bales brought 2013-14 commitments to 1.541 million, 336,200 bales ahead of forward bookings a year ago.

Looking ahead, the International Cotton Advisory Committee forecast world ending stocks to rise to a record 83.82 million 480-pound bales in 2013-14 from 82.22 million it projected for 2012-13.

Stocks of that magnitude by July 2014 would represent about nine months of world mill use, according to ICAC’s supply-demand estimates.

However, ICAC said in its May report, the world stocks-to-use ratio minus the Chinese reserve is expected to drop to an estimated 30 percent from 37 percent this season. This, ICAC said, could pose “a potential challenge to the global supply of cotton next season.”

Assuming China adheres to the current reserve policy, ICAC said, the Cotlook A Index of world values is projected to average 122 cents per pound in 2013-14 and 88 cents in 2012-13. These compare with averages foreseen a month ago of 118 cents and 90 cents, respectively.

The ICAC projected world production at 113.03 million bales in 2013-14, down from 120.98 million now foreseen for 2012-13, and pegged mill use at 111.38 million bales, up from 108.90 million this season.

Global production is expected to decline 5 percent in 2012-13 from the previous season, it said, and a further decline of 6 percent is forecast for 2013-14. Mill use is estimated to rise 7 percent this season and an additional 2 percent next season.

China’s mill use is expected to fall to 36.74 million bales in 2013-14 from 38.12 million in 2012-13 as the national cotton policy remains unclear, while imports are forecast to fall to 13.78 million bales from 16.99 million.

“Because of the Chinese national cotton reserve policy, a seismic shift in the location of world cotton use is underway,” ICAC said. ”Decreased mill use in China will be partially offset by increases in India, Bangladesh, Turkey and Pakistan.”

On the U.S. crop scene, planting progress edged up just three percentage points to 17 percent done during the week ended May 5, USDA reported. The lag widened to 18 points behind a year ago and 10 points behind the five-year average.

Progress crawled only two points to 16 percent planted in Texas, 11 points behind last year and eight points behind the average, and advanced seven points to 17 percent completed in Georgia, behind by nine and three points, respectively.

The biggest lags persisted in the Delta, and much of the Southeast was about 10 days behind. Only 5 percent had been planted in Arkansas, the No. 3 cotton state, against 73 percent last year and 35 percent on average, while growers in North Carolina had planted 12 percent, down from 16 percent a year ago and the average.

Upland growers had contracted only 10 percent of their intended acreage by May 1, about the same as a month earlier, up a percentage point from last year and down 16 points from two years ago, according to informal USDA surveys.

Contracting was most active in the Southeast at 29 percent, against 11 percent a year ago and 31 percent in 2011, followed by the Mid-South at 16 percent, compared with 29 percent and 64 percent, respectively.

Growers had booked 2 percent in the Southwest, same percentage as in 2012 and down from 14 percent in 2011, and also 2 percent in the West, against 4 percent and 3 percent, respectively.

These estimates don’t include cotton consigned to marketing organizations but do include cotton contracted with them.