Howell: Strong export sales, dollar skid lift cotton prices

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A second straight week of marketing-year high export sales and a sharp weakening of the U.S. dollar index against a basket of currencies lifted U.S. cotton futures to a new high for the move last week.

Benchmark March gained 64 points for the week ended Thursday to settle at 63.95 cents, a new high close since Oct. 21. It has traded above 64 cents three times in five sessions but hasn’t closed above that.

Maturing December, which expires on Tuesday, eased 12 points to 61.86 cents, while December 2016 gained 64 points to 65.20 cents, its highest settlement since Aug. 21.

Cash grower sales surged to a marketing-year high of 94,734 bales, about triple the 31,713 bales sold the prior holiday-shortened week. Prices rose to an average of 58.96 cents from 58.31 cents, reflecting gains to 11.35 cents from 10.54 cents in premiums over loan repayment rates. Daily price averages ranged from 58.16 to 59.54 cents.

Producers stepped up their selling as the average of the five lowest-quoted world growths for the Far East rose by 106 points to 67.70 cents, boosting the adjusted world price for the program week ahead by a corresponding amount to 47.95 cents and cutting marketing loan gains to 4.05 cents from 5.11 cents.

Dollar index futures plunged 2.4 percent for the day, enhancing the value of U.S. exports such as cotton to foreign importers, after fresh European Central Bank stimulus measures fell short of expectations.

Net U.S. all-cotton export sales for shipment this season of 289,500 running bales (RB) during the week ended Nov. 26, up from 275,100 the prior week, brought 2015-16 commitments to 4.735 million RB.

Commitments lagged year-ago bookings by 2.064 million RB, or by 30 percent. Total sales amounted to 48 percent of the USDA export forecast, compared with 62 percent of final 2014-15 shipments at the corresponding point last season.

All-cotton shipments of 90,800 RB, down from 99,600 RB the prior week, hiked the total for the season to 1.741 million, narrowing the lead over exports a year ago to 185,300 RB. Shipments totaled 17 percent of the USDA forecast, compared with 14 percent of final exports a year ago.

To achieve the USDA projection, shipments need to average roughly 233,000 RB a week, while weekly sales averaging approximately 147,400 RB would match the export forecast.

Looking ahead, traders expect smaller U.S. and world production and lower global mill use in USDA’s updated supply-demand estimates scheduled for release on Wednesday.

Informa Economics, Memphis-based analytical firm, estimated U.S. cotton production at 12.9 million bales, sources said, down from 13.28 million projected by USDA last month.

In its latest global supply-demand report, Cotton Outlook projects a reduction of 971,000 metric tons (4.46 million 480-pound bales) in 2015-16 world ending stocks from 2014-15, compared with 768,000 tons (3.53 million bales) indicated a month ago.

The downturn still is expected mainly in China, where mill use of 7.05 million tons (32.38 million bales) is forecast to exceed production of 5.01 million tons (23.01 million bales). The crop estimate is down 370,000 tons and the mill use forecast down 300,000 tons from a month ago.

Consumption and production estimates for China for last season were shaved 100,000 tons each to 7.25 million (33.3 million bales) and 6.29 million (28.89 million bales), respectively.

World production is forecast down 555,000 tons (2.55 million bales) from the previous projection to 22.42 million (102.97 million bales). An increase in Australia’s crop was more than offset by lower output in major producing nations, including China, India and Pakistan.

The global output is projected to fall 12 percent from 25.48 million tons (117.03 million bales) now estimated for last season.

For the first time, world cotton consumption also is forecast to decrease, albeit modestly, during the current season. Mill use is forecast at 23.391 million tons (107.43 million bales), down from 23.743 million tons (109.05 million bales) foreseen last month and 23.56 million tons (108.21 million bales) consumed last season.

The USDA last month forecast world production at 105.63 million bales, consumption at 111.59 million bales and ending stocks at 106.09 million bales, nearly 6 million bales below beginning stocks.

On the U.S. crop scene, the harvest advanced 10 percentage points to 80 percent complete during the week ended Nov. 29, compared with 83 percent a year ago and the five-year average of 88 percent.

Harvesting moved at a 15-point clip in Texas to 75 percent complete, up from 58 percent a year ago but behind the five-year average of 80 percent. Seventy-four percent of the Georgia crop was harvested, behind 90 percent a year ago and 85 percent on average. The biggest lag behind average was 25 points in South Carolina, where 64 percent had been picked.

U.S. upland classing of 838,286 running bales during the week ended Nov. 26, down from 998,489 bales the prior week, brought the season’s total to 6,699,496 bales.

Cotton tenderable on U.S. futures contracts declined to 53 percent from 55.4 percent the previous week and totaled 57 percent for the season, down from 72.8 percent graded for the season a year ago.

Upland classing lagged about 24 percent behind year-ago grading of 8.798 million bales and was 54 percent of USDA’s November crop estimate. A year ago, 58 percent of the final upland crop had been classed.

Meanwhile, trend-following funds reduced their net longs by 7,469 lots to 21,416 in U.S. cotton futures-options combined during the week ended Nov. 24, according to government traders-commitments data.

Index funds cut their net longs by 124 lots to 63,905, while traders with nonreportable positions reversed to net short 800 lots from net long 1,778 lots, a flip totaling 2,579 lots. Commercials covered 6,706 shorts and added 3,467 longs, cutting their net shorts by 10,173 lots to 84,520.

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