Howell: Cotton braces for beginning of China sales, ends mixed

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Bracing for the start of sales from China’s government-held stockpile, cotton futures closed the marketing week ended Thursday on a mixed note on light volume.

Most-active July finished with a slight 32-point loss for the week to 63.69 cents after posting a new intraday high for the move by a single point at 64.75 cents on Tuesday. It coiled on a closing basis within a mere 46-point range.

December eased off 16 points to finish at 62.54 cents after touching a follow-through high at 63.38 cents, highest since Jan. 11. Maturing and thinly traded May edged up 20 points to close at 63.69 cents.

Deliveries on May for first three days of the notice period totaled 213 lots (21,300 bales) and appeared moving into strong hands. May’s open interest coming into Thursday’s session had declined to 111 lots.

The opening round of China’s sales of stockpiled cotton, set to begin Tuesday, appeared to have promoted trading caution as the week progressed. The sales will continue through August, ending prior to new-crop movement.

Cash grower sales slid to 1,699 bales from 22,114 bales on The Seam. Prices declined to an average of 54.68 cents from 60.69 cents, reflecting a drop to 7.85 cents from 11.60 cents. Daily price averages ranged from 43.77 to 56 cents.

Weak U.S. export sales and losses in U.S. equities were among the factors weighing on cotton sentiment at the end of the period in the face of a four-day skid in the U.S. dollar index.

U.S. all-cotton export sales for shipment this season of 74,600 running bales during the week ended April 21, down from 117,900 the previous week, brought commitments to 8.109 million, widening the gap behind year-ago bookings by 60,000 RB to 2.417 million, or 23 percent.

Upland net sales of 48,700 RB were the lowest of the marketing year, not counting rollovers of unshipped old-crop sales in August.

Slower sales had been expected as a result of price advances and many mill buyers moving to the sidelines after having covered immediate to nearby needs. However, sales were weaker than generally expected.

Commitments reached 88 percent of USDA’s export estimate, compared with 96 percent of final shipments at the corresponding point last season. Sales averaging roughly 78,950 RB a week would match the forecast.

Sales for shipment next season of 4,700 RB, down from 21,100 of all cotton the prior week, nudged 2016-17 commitments to 1.156 million. The margin over forward sales a year ago narrowed 38,200 RB to 71,200.

All-cotton shipments of 258,700 RB, up from 211,400 the prior week, hiked the season’s total to 5.751 million. Yet the lag behind year-ago shipments widened 31,000 RB to 1.523 million, or 21 percent.

Exports stood at 62 percent of the USDA projection, compared with 67 percent of final shipments a year ago. Shipments averaging approximately 247,500 RB a week are required to achieve the estimate.

On the crop scene, U.S. growers had planted 10 percent of their expected cotton acres as of April 24, USDA reported, compared with 7 percent a week earlier, 9 percent a year ago and 13 percent for the five-year average.

Progress in Texas crept up a percentage point to 11 percent, up from 8 percent last year but down from 13 percent on average. Topsoil moisture on the High Plains was short to very short in 63 percent of the north and 54 percent of the south.

Cotton was 55 percent planted in Arizona and 80 percent in California, compared with the respective averages of 58 percent and 61 percent. Growers had planted 14 percent in both Alabama and Missouri, up from averages of 9 percent and 3 percent, respectively. Planting elsewhere ranged mostly from 1 percent to 8 percent.

U.S. upland outstanding 2015-crop loans plunged 1.294 million running bales to 1.313 million during the week ended April 18, spurred by a surprise jump in the adjusted world price and a corresponding steep drop in the marketing loan gain for the program week of April 15-21.

Loan repayments surged to 1.297 million RB and entries declined to 2,757 RB. Upland cotton under loan included 203,076 RB of Form A issued to individual growers and 1.11 million RB issued to marketing cooperatives or loan servicing agents.

With the AWP figured at 52.33 cents for the program week of April 22-28, above the base cotton loan rate of 52 cents, there will be no loan deficiency payments.

Rallies may have been restrained partly by customs data showing China’s first-quarter calendar imports fell 53.2 percent to 209,700 metric tons (963,100 statistical bales) from year-ago levels.

China’s imports for the 2015-16 marketing year ending July 31 are forecast by USDA at 5 million bales, down 39.6 percent from last season. Recent policy shifts in China have discouraged production and limited imports, beginning the process of reducing the burdensome surplus of government-held stocks, USDA analysts have pointed out.

Previously, cotton policies in China insulated producers from declining world prices and at the same time encouraged imports. Under the new policies, China’s stocks are expected to decrease this season for the first time since 2010-11.

However, with stock reductions also expected in the rest of the world, China’s share of global stocks remains above 60 percent, indicating the country’s reserve stocks will overhang the market for several years.

Meanwhile, trend-following funds reversed to net long 9,355 lots in cotton futures-options combined from net short 16,817 lots during the week ended April 19, government traders-commitments data showed.

They aggressively bought 26,171 lots, covering 20,767 shorts and adding 5,404 longs to flip to the long side for the first time since Feb. 2. Index funds reduced their net longs by 1,493 lots to 72,700, while nonreportable traders boosted their net longs by 2,859 lots to 3,468.

Commercials raised their net shorts by 27,539 lots to 85,523, liquidating 15,862 longs and adding 11,677 shorts.

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