Howell: Cotton climbs above December swing highs

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A declining U.S. dollar index and rising crude oil and grains prices helped cotton futures — underpinned by lower initial crop ratings — to climb above swing highs of December last week.

Cotton prices slid back below resistance at those December highs but still finished with gains for the week ended Thursday of 209 points to 64.96 cents in spot July and 263 points to 65.30 cents in December.

July surged to a high of 66.50 cents at midweek, above its December swing high at 66.31 cents, but staged an outside-range reversal to close fractionally lower on the day. It lost its premium to December and finished the week on its widest closing discount since November.

July took out what had been persistent resistance around the 64.50 area — now viewed as a support zone — on Monday and remained above it on a closing basis. Trading was heavy, twice totaling up to around 63,000 lots a day, with switches accounting for up to 60 percent of the volume.

Traders prepared for the expiration of July options and updated USDA supply-demand estimates, both of which were to take place Friday.

U.S. export sales-shipments reported by USDA appeared compatible with the tentative thinking of some observers that final 2015-16 exports may come in about even with to possibly slightly higher than the May forecast.

All-cotton sales for shipment this season of 116,900 running bales during the week ended June 2 boosted 2015-16 commitments to 8.887 million RB. The margin by which commitments trailed year-ago bookings narrowed by 63,000 RB to 2.111 million, the sixth consecutive week in which the margin has tightened.

Commitments were down 19 percent from year-ago bookings, compared with USDA’s May forecast last month for exports to fall 20 percent below 2014-15 shipments. Cumulative sales were about 102 percent of the USDA export projection, against about 101 percent of final 2014-15 shipments at the corresponding point last season.

All-cotton shipments of 214,800 RB, down from 251,400 the week before, brought the total for the season to 7.186 million RB, widening the gap behind year-ago exports to 2.109 million RB.

Exports lagged about 23 percent behind a year ago and were 82 percent of the USDA estimate, while year-ago shipments were 85 percent of the 2014-15 final. Yet weekly shipments have been running ahead of the pace needed to make the forecast, now an average of roughly 193,000 RB a week.

Sales for shipment next season of 130,500 RB, up from 76,100 the prior week, hiked the weekly total for both crop years to 247,400 RB and raised 2016-17 commitments to 1.569 million RB.

Commitments for 2016-17 were 161,000 RB ahead of forward bookings a year ago and were 15 percent of the USDA projection. A year ago, forward bookings were 16 percent of the current export estimate for 2015-16.

On the U.S. crop scene, cotton planting advanced 16 percentage points to 75 percent completed during the week ended June 5, even with a year ago but nine points behind the five-year average, USDA’s progress report showed.

Crop ratings are starting out below year-ago conditions, with 47 percent good to excellent, down from 50 percent a year ago, fair down two points to 41 percent and poor to very poor up five points to 12 percent.

The DTN cotton condition index of 131, based on the USDA report, was behind the year-ago reading of 142. This was the first cotton conditions report of the season.

Planting progress jumped 21 points to 65 percent completed in Texas, two points behind a year ago and 13 points behind average. Progress rose by 11 points in Georgia, even with last year but a point behind average.

The crop in Texas, the nation’s largest producer, was 37 percent good to excellent, 47 percent fair and 16 percent poor to very poor. A year ago, it was 42 percent good to excellent, 50 percent fair and 8 percent poor to very poor.

On the policy scene, U.S. industry officials expressed gratitude to Secretary of Agriculture Tom Vilsack for providing a one-time $300 million program that offsets a portion of producers’ 2015-crop ginning costs.

The cost-share program resulted from the agency utilizing its administrative authority under the Commodity Credit Corp. Charter Act to help facilitate the marketing of commodities.

The program also will help stabilize a seven-sector industry that provides employment for some 125,000 Americans and generates more than $75 billion in annual economic activity, National Cotton Council Chairman Shane Stephens, Mississippi warehouseman, said.

The industry will continue to work with Congress and USDA to seek long-term cotton policy solutions, producer spokesmen said.

Payments will be determined by a producer’s 2015 certified acres, multiplied by 40 percent of the average ginning cost for each production region. Per-acre payment rates are $47.44 in the Southeast, $56.26 in the Mid-South, $36.97 in the Southwest and $97.41 in the West.

The program has the same eligibility requirements as were used for the 2014 cotton transition assistance program, including a $40,000 per-producer payment limit, requirement to be actively engaged in farming and meet conservation compliance and a $900,000 adjusted gross income ceiling.

Meanwhile, trend-following funds boosted their net long position by 9,923 lots to 38,571 in cotton futures-options combined during the week ended Tuesday, according to the latest traders-commitments data from the Commodity Futures Trading Commission.

That was their largest net long position since Dec. 29, and they probably added to it as prices surged and open interest expanded. Index funds raised their net longs by 1,175 lots to 67,859, while traders with nonreportable positions increased theirs by 1,240 lots to 6,574.

Commercials sold a net 12,240 lots to lift their net shorts to 113,005 lots, adding 12,699 shorts along with 460 longs.

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