Howell: Cotton explodes to near calendar-year peak as volume jumps


An explosive move from quiet, sideways trading has swept cotton futures to an eight-week high amid a surge in volume.

Benchmark December advanced 382 points or 4.5 percent for the week ended Thursday to close at 89.25 cents. It settled only 17 points off the week’s high and 31 points from the calendar-year high. March gained 358 points to settle at 87.16 cents.

Concerns over tight nearby supplies ahead of volume movement of a late crop overrode a potentially bearish longer-range outlook as traders awaited a key U.S. production forecast and updated supply-demand estimates on Monday.

The market exploded at midweek when the daily volume jumped to 33,800 lots, largest since June 17 and more than had traded in the three previous sessions combined.

A close above key moving averages on Tuesday set the stage for the impressive rally the next day, and follow-through technical momentum lifted December to its highest close on Thursday since June 14.

The rally, attributed by most analysts primarily to technical considerations, was accompanied by a 15,415-lot jump to 186,221 lots in open interest, evidence of new longs entering the market. Certificated stocks fell 9,045 bales to 62,803.

U.S. export sales were about as expected at 96,100 running bales for 2013-14 for the week ended Aug. 1, up from 50,000 the prior week. This plus a carryover of 953,900 bales of unshipped sales from 2012-13 brought 2013-14 commitments to 3.446 million RB, 31 percent of the USDA forecast.

Shipments ended the 2012-13 marketing year on Aug. 31 at 12.676 million running bales, up about 11 percent from the previous season but roughly 226,000 RB below the USDA estimate.

On the crop scene, U.S. conditions improved marginally during the week ended Aug. 4, with good to excellent holding steady at 45 percent, poor to very poor dipping a percentage point to 21 percent and fair gaining a point to 34 percent.

The DTN cotton condition index rose to 106 from 103 the previous week and 86 a year ago. For Texas, the index improved modestly for the third week in a row to 64, against 59 a week ago and 30 last year.

Cotton setting bolls advanced 14 points to 53 percent, still 18 points behind last year and 17 points behind the five-year average.

U.S. production is projected at 13.91 million bales by Memphis-based analytical firm Informa Economics, sources said, up from 13.5 million bales forecast last month by USDA but down from last season’s 17.315 million bales.

All-cotton yields are estimated by Informa at 824 pounds per acre off 8.107 million acres for harvest, against USDA’s July forecast of 831 pounds off 7.8 million acres. Last season’s crop yielded an average of 887 pounds off 9.37 million harvested acres.

Private crop estimates have appeared to range thus far predominantly from about 13 million to 14 million bales.

Sharon Johnson, cotton specialist with KCG Futures of Roswell, Ga., pegged the crop at 13.34 million bales. She estimated yields at 815 pounds and the harvested area at 7.85 million acres. Her estimates on abandonment and harvested acreage are similar to USDA’s July forecasts.

“It has been my experience in years with weather-related problems, production issues are overstated early on, but I suspect that will not be the case with 2013-14,” Johnson said.

This is because weather not only was problematic during planting but also during the growing cycle to date, she said.

“Based on expected weather the next few weeks, those concerns will not evaporate or be reversed,” she added. “If harvest conditions are equally challenging, my estimate will be too high and quality worries will surface as well.”

Globally, production now is expected outstrip mill use by 7.31 million bales in 2013-14, up from 2.85 million bales foreseen a month ago, according to the International Cotton Advisory Committee.

In its August supply-demand estimates, the ICAC raised production 2.94 million bales on the month to 117.54 million and cut consumption 1.52 million bales to 110.23 million.

World trade is forecast down 1.15 million bales to 41.2 million and ending stocks at a record 90.99 million bales, up from 85.02 million estimated last month and an eye-popping 83 percent of projected mill use.

Global production will have exceeded consumption by a cumulative 50.5 million bales from 2010-11 through 2013-14, resulting in a doubling of world ending stocks in four seasons, ICAC’s estimates indicated.

The ICAC reduced its 2013-14 projection world prices as measured by the Cotlook A Index to 108 cents, still up from 88 cents in 2012-13 and 100 cents in 2011-12 but down from the forecast a month ago of 115 cents.

Based on 2012-13 estimates for China of consumption at 38.13 million bales and ending stocks of 43.18 million bales, of which 35.8 million are in the national reserve, total stocks cover more than a year of use.

However, ICAC said, stocks held in the private sector are equivalent to a little more than two months of use.

Beijing has announced that the program of purchasing cotton from farmers for the national reserve will be continued in 2013-14 at 20,400 yuan per metric ton, far above international values and even above the China Cotton Index of 19,206 per ton or 141.30 cents per pound Thursday.

This means the strategic stockpile is expected to continue to grow. The ICAC expects the reserve to rise to roughly 68.9 million bales by March 2014, and then auctions to reduce it to about 55.1 million bales a year from now.

Of the estimated world carryout, only 36.75 million bales, or about 40 percent, would be available for commercial use and only 27.56 million would be held outside China, ICAC estimates indicated.

Polyester prices in China this month have remained more than 20 cents per pound below the Cotlook A Index, undermining cotton’s competitiveness in fiber markets