Howell: Export sales, shipments help drive cotton to two-year high

By Duane Howell
For A-J Media

Higher-than-expected U.S. export sales and strong shipments have helped to power cotton futures to a two-year high amid perceptions of a need for prices to ration tight old-crop supplies.

The market surged 380 points in benchmark May for the week ended Thursday to settle at 91.61 cents, the highest finish for May since February 2012, and posted the highest continuation close since August.

July jumped 344 points to 90.71 cents and December gained 171 points to 79.55 cents, highest close for the new-crop contract since Jan. 22.

The market triggered buy stops as it ripped through chart resistance. Talk circulated that China may be planning a new type of import quota.

Cash grower-to-business sales quickened to 18,590 bales from 11,785 bales the previous week. Prices averaged 82.64 cents, up from 80.93 cents, reflecting gains to 31.93 cents from 30.14 cents in premiums over loan repayment rates. Daily price averages ranged from 76.74 cents to 85.36 cents. The weekly average price was the highest since August.

Weekly export sales-shipments data reinforced expectations that USDA will boost its export forecast and lower ending stocks in its updated supply-demand report on Monday.

Net all-cotton export sales for shipment this season jumped to 182,100 running bales during the week ended Feb. 27 from a crop-year low of 42,000 RB the previous week. Upland net sales of 159,500 RB reflected gross sales of 206,300 and cancellations of 46,800.

Commitments climbed to 9.302 million RB, about 91 percent of the USDA forecast, with 21 weeks left in the marketing year. A year ago, commitments were about 86 percent of final 2012-13 shipments.

All-cotton shipments hit a marketing-year high of 376,900 RB, up 12 percent from the prior four-week average. Exports for the season climbed to 5.729 million RB, 56 percent of the estimate, compared with 54 percent of final shipments at the corresponding point last year. Shipments now need to average roughly 212,200 RB a week to reach the estimate.

Earlier, U.S. futures felt some pressure from steep losses in China’s Zhengzhou cotton futures amid talk that Beijing plans to drop the selling price on its reserve stocks.

Reports in the Far East were said to have mentioned a base of roughly 17,500 yuan per metric ton, down from the current 18,000 yuan, or the equivalent of 127 to 128 cents per pound, depending upon exchange rates. An international group said it expects that China will aim for a slow, controlled release.

A four-to-one purchase plan is said to be under consideration. This would mean an eligible mill could buy 4,000 tons from the reserves and receive one ton of sliding-scale import quota. The talk of a possible new processing quota indicated it would be a separate or additional plan.

An announcement of a new sales price and other policy details might be made by or after March 31 when the purchase program of 2013-14 cotton is scheduled to end, reports have indicated.

Traders took note of only marginal changes in the International Cotton Advisory Committee’s monthly 2013-14 world supply-demand estimates. Converted to statistical 480-pound bales from metric tons, the global carryout forecast eased 40,000 to 91.54 million.

That’s up 12.1 percent from the ICAC estimate for 2012-13. World production is expected to fall 4 percent from last season to 118.27 million bales and consumption to rise 1 percent to 108.39 million bales.

Looking ahead to 2014-15, ICAC expects world production to exceed consumption for a fifth season and ending stocks to grow 4.6 percent to 95.72 million bales. World production is projected to decline by 1.6 percent to 116.39 bales. But it still would top consumption, though mill use is forecast to grow 3.5 percent to 112.21 million bales.

The expected mill use increase is based on continued economic growth in Asia where much of the cotton consumption takes place.

Harvesting will be underway this month in the Southern Hemisphere and planting will begin in many countries in the Northern Hemisphere, ICAC pointed out.

In a weekly report, USDA rated soil moisture as of Sunday, March 2, as short to very short in 94 percent and 91 percent in the northern and southern areas of the Texas High Plains, respectively.

The Risk Management Agency was expected to announce an insurance price of 78 cents for 2014 on the High Plains, based on February closes in December futures. The sales closing date for the region is March 15.

Light precipitation and cool soil temperatures delayed initial planting in the Rio Grande Valley and other areas of South Texas. Soil moisture was 65 percent adequate in the valley and 85 percent short to very short around Corpus Christi.

Meanwhile, funds reduced longs during the latest reporting week ended Feb. 25 and commercials trimmed shorts as prices fell, according to Commodity Futures Trading Commission data.

Trend-following funds sold a net 3,394 lots to cut their net long position in futures-options combined to 41,115 lots, the CFTC supplemental traders-commitments report showed.

Index funds sold 432 lots to nudge their net longs down to 56,330 lots. Traders with non-reportable positions bought a net 294 lots to edge their net longs up to 8,122 lots.

Commercials bought a net 3,534 lots, covering 4,561 shorts and liquidating 1,027 longs to trim their net shorts to 105,568 lots.

Separately, unpriced May-July on-call positions rose by 3,738 lots on the mill side and 1,226 lots on the producer side during the week ended Feb. 21, according to other CFTC data.

Mills raised their unfixed May-July position to 47,739 lots and producers hiked theirs to 5,138 lots. The net call difference widened 2,512 lots to 42,601, which was 31.3 percent of the open interest.

The unfixed May-July mill position outweighed that of producers by a ratio of 9.29:1. In the next session after that reporting week ended, May posted what was then a new intraday high (90.44) for the move.