Howell: Heavy selling drives cotton market to five-year low

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Heavy selling by the speculative community shortly after hedge funds had reversed to the long side pounded cotton futures to new contract lows last week amid active spread trading.

Spot December lost 346 points to close at 59.73 cents for the week ended Thursday, near the low of its 626-point range from 65.77 to 59.51 cents. Most-active March hit a low of 58.57 cents, lowest since September 2009, and closed down 353 points at 58.75 cents.

World prices as measured by the Cotlook A Index fell to 67.40 cents, a marketing year low.

Selling in futures intensified on Monday with a huge reversal in spot December from a triple-digit gain to a triple-digit loss. Volume mushroomed to 77,832 lots, the largest daily turnover since Nov. 10, 2011, and the fifth largest on record.

Spreading accounted for up to 69 percent of the daily volumes as traders rolled positions from December to March. First notice day for December deliveries is Friday. December’s open interest going into Thursday’s session had fallen 54,880 lots from a week earlier to 23,406 and stocks in deliverable position had grown 3,309 bales to 19,663.

Cash grower-to-business sales fell to 8,926 bales from 14,005 bales on The Seam. Prices slipped to an average of 61.13 cents from 61.74 cents, reflecting a decline to 9.99 cents from 10.29 cents in premiums over loan repayment rates. Loan values averaged 51.14 cents, down from 51.45 cents.

The USDA’s supply-demand estimates, though initially viewed as slightly bearish in relation to expectations, featured mostly only small changes.

U.S. crop prospects improved 142,000 bales from the October forecast to 16.397 million. Increases in the Southeast and the Southwest more than offset a reduction in the Delta.

Domestic mill use and exports were unchanged at 3.8 million and 10 million bales, respectively, resulting in an increase to 5.1 million bales in ending stocks from 4.9 million foreseen in October. The stocks-to-use ratio rose to 37 percent from 35.5 percent last month.

The USDA projected the marketing year average farm price to range between 56 and 64 cents, with the midpoint remaining unchanged at 60 cents, down from 77.90 cents last season.

The upland crop accounted for the production increase, rising to 15.819 million bales while the output of Pima remained at 578,000 bales. The Texas crop grew the most, up 150,000 bales to 6.4 million.

All-cotton yields nationally were estimated at an average of 797 pounds per harvested acre, compared with 790 pounds forecast in October, 821 pounds last season and the five-year average of 819 pounds.

Production prospects increased 50,000 bales from a month ago to 3.745 million on the Texas High Plains, up 53 percent from last season’s 2.446 million bales. The area crop is larger than that of any other state.

The High Plains is projected to account for 59 percent of the Texas crop and 24 percent of the U.S. upland production. Prospects in the adjoining Rolling Plains east of the Caprock rose by 45,000 bales to 835,000 to raise the combined West Texas Plains production to 4.58 million bales, up 1.312 million bales from last season.

Globally, minor revisions edged ending stocks up 250,000 bales, or 0.24 percent, to a record 107.36 million. A Bloomberg News report said the stockpiles would be enough to make about 23 billion pairs of jeans, or three for every person on the planet.

Beginning stocks were raised 170,000 bales to 101.48 million, production gained 240,000 bales to 119.69 million and consumption grew 170,000 bales to 113.85 million.

With the carryover estimate for China unchanged on the month at 62.16 million bales, rest-of-world ending stocks were projected at 45.2 million bales, up from 38.77 million a year earlier and 59 percent of consumption.

On the current crop scene, U.S. harvesting advanced 12 percentage points during the week ended Nov. 9 to 62 percent complete, up eight points from a year ago but two points behind the five-year average.

The Texas harvest at 42 percent done was four points behind a year ago and 17 points behind average, while the Georgia harvest at 74 percent complete was up from 45 percent last year and 56 percent on average.

On the demand front, U.S. imports of synthetic apparel have overtaken cotton garments this year for the first time in decades, according to government data, underscoring longer-term concerns that cotton is losing ground in its fierce battle with manmade fibers.

Of 19.43 billion square-meter equivalents (SME) of apparel shipped to the United States through September, 9.87 billion, or 50.8 percent, was clothing made primarily of synthetic fibers like polyester and viscose. Some 9.16 billion SME made primarily of cotton marked the first time since 1991 that cotton apparel imports were lower than those made of synthetic fibers. Cotton apparel imported during the first nine months of the year fell 2 percent from the corresponding period in 2013 even as overall apparel import demand rose.

Yarn mills have switched spindles to manmade fibers owing to years of extreme gyrations in cotton prices and improving synthetic technology.

Falling polyester prices have clouded the hope that the lower cotton prices will spur demand. The decline in polyester prices has been attributed partly to sympathy with the fall in cotton values and partly to freefalling prices of oil, a key raw material.

Meanwhile, trend-following funds reversed to net long 3,037 lots from net short 3,030 lots in cotton futures-options combined during the week ended Nov. 4, government data showed.

This marked the first time those funds — seen among the sellers last week — have been net long in the weekly reports since July 1. Index funds increased their net longs by 1,275 lots to 59,172, while traders with non-reportable positions decreased their net shorts by 757 lots to 2,494.

Commercials boosted their net shorts by 8,099 lots to 59,715, liquidating 4,526 longs and adding 3,573 shorts.

– lubbockonline.com

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