Howell: Cotton rallies as traders await report on planted acres


Positioning ahead of a report on U.S. planted acres, fund book-squaring for the approaching end of the month and quarter and rallies in the grains complex have contributed to driving cotton futures higher.

Most-active December rose 66 points for the week ended Thursday to close at 65.38 cents, while maturing July advanced 80 points to settle at 64.88 cents. A lack of July delivery notices helped to fuel the rally.

December settled back above its 40-day and 50-day moving averages and finished at its highest close since June 10, the day of USDA’s monthly supply-demand report.

The acreage report from USDA on Tuesday will show the area planted and still intended for planted as of surveys conducted from May 30 to June 17. Results will be incorporated into the July supply-demand report.

A small reduction has been generally expected from the March intentions of 9.549 million acres, down 13 percent from last year’s acreage and the smallest cotton plantings since 2009.

But some early estimates by cotton analysts have ranged mostly from 9.2 million to 9.7 million acres, with an outlier of 8.8 million acres. Informa Economics, Memphis-based analytical firm, is said to have estimated plantings at 9.429 million acres, down 120,000 acres from 2014.

This USDA report won’t include estimates on acres for harvest. The July 10 crop report will have acres-for-harvest estimates based on statistical analysis, likely adjusted for weather-related developments.

The Aug. 12 supply-demand report will contain the season’s first survey-based estimates on acreage for harvest, yield and production.

On the demand front, U.S. export sales for shipment this season of 64,400 running bales during the week ended June 18 boosted commitments to 11.126 million bales, up 453,000 bales from a year ago and 107 percent of the USDA estimate.

Shipments of 206,200 running bales brought the season’s total to 9.725 million, 94 percent of the forecast and 240,000 bales ahead of year-ago exports. Weekly shipments averaging roughly 109,000 would achieve the USDA forecast.

New-crop commitments rose to 1.53 million running bales, 15 percent of the USDA projection, on sales of 52,700 bales. Forward bookings a year ago were 2.37 million bales, 23 percent of the USDA estimate for 2014-15. Exports next season are projected even with this season’s.

On the crop scene, U.S. cotton planting edged up three percentage points to 94 percent complete during the week ended June 21, against 99 percent last year and the five-year average of 100 percent.

Planting in Texas also rose three points to 91 percent done, behind 96 percent last year and the average of 98 percent.

Crop ratings eased slightly, with good to excellent unchanged at 55 percent, fair down two points at 36 percent and poor to very poor up two points to 9 percent. A year ago, conditions were 53 percent good-excellent, 35 percent fair and 12 percent poor-very poor. The DTN cotton condition index slipped two points from a week earlier to 147 but was up from 137 a year ago.

Good to excellent cotton in Texas edged up a point to 50 percent, while fair dropped three points to 40 percent and poor rose two points to 10 percent. The DTN cotton condition index for Texas eased a point to 139 but was up from an unchanged 106 a year ago.

Squaring nationally at 22 percent was up from 13 percent a week ago but behind 23 percent a year ago and 26 percent on average.

On the international scene, China’s cotton imports totaled 162,906 metric tons (748,214 480-pound bales) in May, up slightly from the prior month but down 15 percent from a year ago, according to customs data.

Imports for the calendar year through May were 771,665 tons (3.54 million bales), down 34 percent from the corresponding period last year.

However, imports for the 10 months of the cotton marketing year from Aug. 1 through May of 1,537,037 tons or 7.06 million bales suggested the crop year pace is track to exceed USDA’s upwardly revised 2014-15 estimate. U.S. cotton was the largest supplier, accounting for 30 percent of the total.

The USDA raised its June estimate of China’s imports this season by 300,000 bales from a month earlier to 8 million, which is down 43 percent from last season’s 14.12 million bales. The June estimate is a million bales above the January projection.

Combined imports of approximately 940,000 bales in June and July would achieve the USDA estimate.

Looking ahead, USDA projects global trade to reach only 33.8 million bales in 2015-16, down 400,000 bales from the prior year and the lowest since 2008-09 when it was 30 million bales. The U.S. share is projected at 32 percent, up slightly from 2014-15 and the highest in five seasons.

The global trade downward trend is linked to China’s cotton import demand, which is projected to decline for the fourth consecutive season to 6 million bales in 2015-16. A decline is expected in import quotas.

Increases in imports in a number of countries — including Vietnam, Turkey and Indonesia — are expected to offset a portion of China’s decline, USDA says.

Exports are expected to decrease mainly from the Southern Hemisphere, notably from Brazil and Australia, which are forecast to export 3.6 million and 2 million bales, respectively. Exports this season are pegged at 4 million bales from Brazil and 2.8 million from Australia.

Meanwhile, trend-following funds reduced their net longs by 5,401 lots to 16,482 in cotton futures-options combined during the week ended June 16, according to government data.

They liquidated 3,344 longs and added 2,057 shorts. Index funds trimmed their net longs by 2,566 lots to 64,009, while traders with non-reportable positions cut theirs by 3,165 lots to 4,352.

Commercials covered 15,426 shorts and liquidated 4,294 longs, chopping their net short position by 11,132 lots to 84,844.

In futures only, noncommercials reduced their net longs by 2.6 percentage points to 18 percent of the open interest.