Howell: Cotton gives back more than half of previous week gain

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Cotton futures finished holiday-shortened trading lower last week, unable to overcome an area of persistent overhead resistance.

Spot July lost 146 points for the week ended Thursday to close at 62.87 cents, giving back more than half the prior marketing week’s gain. It traded from 64.59 to 62.81, again retreating from its eighth probe to and over 64.50 in seven weeks and facing support seen by some traders at 62.50 — midway between the April high of 64.75 and the May low of 60.25.

December, which took the lead in open interest amid position-rolling from July, dropped 127 points to settle at 62.67 cents. Open interest coming into Thursday’s session had expanded 4,781 lots from a week earlier to 201,195, with July’s down 7,130 lots to 89,788 and December’s up 10,211 lots to 92,371.

Stocks in deliverable position grew 13,529 bales to 107,731 and 1,406 bales awaited review. July options expire Friday and first notice day for July deliveries is 10 trading days later.

Traders kept an eye on crop developments amid questions about whether there might be a planting shift from cotton to soybeans in the Delta and Southeast on price considerations and whether heavy rains in Texas might prevent acres intended for cotton from being seeded in a timely manner.

U.S. cotton planting reached 59 percent completed during the week ended May 29, up 13 percentage points from a week earlier and two points from a year ago but 10 points behind the five-year average.

Five percent was squaring, even with the average and up from 2 percent last year. The next report is expected to include data on cotton crop conditions.

The Texas crop was 44 percent planted, up from 41 percent a year ago but behind the average of 59 percent, while progress in Georgia reached 76 percent, even with last year’s pace but two points behind average.

The lag behind average in Texas widened five points from a week earlier. Row crops in areas of the southern High Plains sustained significant hail damage. Squaring cotton statewide inched up to 7 percent, up two points from last year and even with the average.

Torrential rains, hail and blowing sand in sizable areas of the High Plains during the week ended Thursday impeded planting progress and raised questions about whether estimates by industry sources of an intended cotton area of 3.4 million to 3.6 million acres, up from 3.113 million acres last year, can be achieved.

The big bulk of the intended acreage appeared likely to stay in cotton, industry sources said, except perhaps for small losses in the north and northwestern areas. Elsewhere, how quickly producers can return to wet fields will be a consideration, and the extent of the area to be replanted will be a factor in the acreage that is maintained in cotton.

Crop insurance planting deadlines for cotton expired Tuesday in the north-northwestern area, loom Sunday in the central area and arrive Friday in southern counties.

On the international scene, China’s accumulated sales from its huge strategic reserves were reported to have totaled 2.677 million bales at the end of May. The sales began May 3 and will continue through August.

Mill cotton use in China, the world’s largest consumer of the natural fiber, is expected to benefit from its domestic textile plants gaining access to supplies from the national reserves at competitive prices.

The USDA expects China’s 2016-17 cotton consumption to grow a million bales, or 3 percent, to 33.5 million from this season. The growth is likely to be supported by declining cotton yarn imports, which USDA expects to continue but at a slower pace than in 2015-16.

China’s raw cotton imports next season are expected to remain limited, reaching only 4.5 million bales, compared with 4.25 million bales estimated for 2015-16 and 8.28 million bales in 2014-15.

Despite policies expected to reduce its cotton stocks considerably over several seasons, China will continue to hold the majority of the world carryover in 2016-17. China’s stocks are forecast to decline 10 percent to 56.7 million bales but still account for 60 percent of the world carryout.

Separately, the Cotton Association of India estimated the crop in the world’s largest cotton producer at 34.15 million bales of 170 kilograms, or 26.68 million 480-pound bales, based on conditions around May 1.

This was up slightly from the CAI estimate the prior month of 34.1 million bales of 170 kilos, or 26.64 million 480-pound bales, and compares with USDA’s May estimate of 26.8 million bales.

India and China are forecast by USDA to account for nearly half the world cotton crop in 2016-17. Production is projected to rise 4.5 percent in India to 28 million bales and to fall 5.5 percent in China to 22.5 million bales.

In its monthly report, the International Cotton Advisory Committee’s world 2016-17 estimates, converted from metric tons to 480-pound bales, projected mill use of cotton to exceed production by 3.31 million bales following a crop shortfall this season of 8.45 million bales.

Consumption is expected to remain roughly steady after falling 3 percent in 2015-16 owing primarily to low polyester prices and weak global economic growth. Production, which dropped 17 percent to 100.17 million bales in 2015-16, is projected to increase 6 percent to 105.68 million bales as planted area expands and yields improve.

Meanwhile, trend-following funds boosted their net long position by 4,333 lots to 28,648 in cotton futures options-options combined during the week ended May 24, according to government traders-commitments data.

Price action for the reporting week had remained within tight closing ranges until ending with triple-digit gains, with July closing above its 200-day moving average. Index funds nudged their net longs up 35 lots to 66,784, while nonreportable traders raised theirs by 446 lots to 5,334.

Commercials increased their net shorts by 4,815 lots to 100,765, adding 4,887 shorts along with 72 longs.

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