Howell: Cotton closes mixed after rising to new two-year high

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Cotton futures retreated three sessions in a row after hitting a new two-year high, rallied amid larger-than-expected U.S. export sales and wound up finishing mixed last week.

Benchmark December fell 90 points for the week ended Thursday to close at 72.97 cents, giving back some of the prior week’s breakout gains. It finished in the lower half of its 324-point range from 75 cents on July 15 – a new high since July 3, 2014 – to 71.76 cents on Wednesday.

March ended little changed, down two points at 73.52 cents, as December lost its premium, while May gained 19 points to close even at 73.52 cents.

Rising U.S. dollar index futures to a four-month high at midweek and weakness in grains and soybeans helped to check cotton rallies in the face of ongoing hot, dry weather in some key areas of the Cotton Belt.

Cash online grower sales fell to 2,089 bales from 32,154 bales on The Seam. Daily price averages ranged from 62 to 66.79 cents, compared with 61.14 to 68.88 cents the previous week.

All-cotton export sales for shipment this season and next increased to a combined 275,700 running bales during the week ended July 14 from 173,800 RB the prior week.

Sales of 81,900 RB for this season brought 2015-16 commitments to 9.558 million RB, 107 percent of USDA’s latest estimate, compared with 105 percent of final 2014-15 exports at the corresponding point last season. Bookings are 1.846 million RB or 16 percent below year-ago commitments.

New-crop sales of 193,800 RB, up from 117,500 RB the week before, boosted 2016-17 commitments to 2.241 million, widening the lead over year-ago forward bookings by 146,100 RB to 497,700.

Those were the largest weekly new-crop sales since Oct. 1. The 2016-17 commitments totaled 20 percent of USDA’s forecast, nearly the same as the percentage of year-ago forward bookings of the 2015-16 projection.

Shipments of 193,600 RB, up from 156,900 the previous week, hiked the total for the season to 8.413 million. This narrowed the gap behind year-ago exports to 2.098 million RB or to 20 percent.

Roughly 511,000 RB remained to be shipped over the remaining two weeks of the marketing year to reach the upwardly revised USDA estimate of 9.2 million statistical bales, now down 18 percent from last season.

Meanwhile, China’s imports of 72,750 metric tons or 333,100 statistical 480-pound bales last month fell 55 percent from June 2015 and totaled 431,254 tons or 1.98 million SB for the calendar year, down 54 percent from January-June last year.

The USDA this month left its estimate of China’s imports for the marketing year ending July 31 unchanged at 4.5 million bales, down 45.6 percent from last season’s 8.28 million bales. Imports for 2016-17 also are forecast at 4.5 million bales.

Sales from China’s government-held reserves have continued to meet strong demand and have reached 1.452 million tons or 6.7 million bales. The announced target is to sell 9.2 million bales by the scheduled end of the current series of auctions on Aug. 31.

On the U.S. crop scene, conditions improved marginally during the week ended last Sunday despite hot, dry conditions across much of the Cotton Belt, but ratings remained below a year ago.

Good to excellent remained at 54 percent, fair rose a percentage point to 36 percent and poor to very poor dropped a point at 10 percent, USDA reported. A year ago, conditions were 57 percent good to excellent, 35 percent fair and 8 percent poor to very poor.

The DTN cotton condition index, based on the USDA report, edged up to 142 from 140 a week ago but was down from 153 a year ago.

Squaring reached 77 percent, up from 72 percent a year ago and the five-year average of 76 percent, while boll setting expanded to 28 percent, compared with 29 percent and 30 percent, respectively.

Conditions improved in Alabama, Arkansas, California, North Carolina and Missouri; declined in Georgia, Louisiana, Mississippi, South Carolina and Virginia; and held about steady on balance in Arizona, Kansas, Oklahoma, Tennessee and Texas.

In Texas, good to excellent cotton fell a point to 47 percent, while fair rose two points to 40 percent and poor to very poor dropped a point to 13 percent. Short to very short topsoil soil moisture in the High Plains rose to 77 percent from 72 percent in the southern district and to 68 percent from 60 percent in the northern area.

Back on the international scene, India’s Cotton Advisory Board has cut its estimate of the country’s 2015-16 production to 33.8 million bales of 170 kilos (26.4 million 480-pound bales), smallest crop in five years.

That’s down from the USDA estimate for India of 26.8 million bales, unchanged from last month. There’s a wide gap in ending stocks estimates. The CAB’s converted estimates showed ending stocks of 3.36 million bales, compared with USDA’s projection of 11.19 million bales.

The USDA estimates world ending stocks outside China at 39.47 million bales, down 310,000 bales from the June forecast and 5.07 million bales from 2014-15. The CAB’s estimate of India’s carryout would indicate the stocks outside China could be much lower than the USDA projection.

Tightening stocks outside China have figured prominently in the big July rally. India, the world’s largest cotton producer, has purchased 320,000 SB of U.S. cotton for 2015-16 and 130,000 SB for 2016-17, ranking as the 10th largest buyer for this season and the sixth for next season, while also importing from other sources, predominantly from Africa.

Meanwhile, trend-following funds raised their net longs by 19,302 lots or 40.3 percent to 67,173 lots — largest since August 2013 — in cotton futures-options combined during the week ended July 12.

Index funds pared their net longs by 817 lots to 60,356, while traders with non-reportable positions hiked theirs by 5,769 lots to 12,402. Commercials sold a net 24,254 lots, adding 32,513 shorts along with 8,259 longs to boost their net shorts to 139,931 lots.

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