Howell: Cotton extends downswing, cuts loss on export demand

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Cotton futures extended a downswing last week, nearing a retracement support area amid further spec-fund paring of a huge net long position and then bouncing on technically oriented buying helped by weekly export sales at the top of expectations.

Benchmark December still lost 285 points for the week ended Thursday to close at 69.01 cents. It fell to 66.88 cents Tuesday, lowest since July 11, and rallied to a high of 70.15 cents Thursday. Futures open interest had declined 8,275 lots from a week ago to 235,454 going into Thursday’s session.

December held at the low above a 50 percent retracement (66.09) of the 23.79-cent rally from the contract low at 54.19 cents on Feb. 29 to the Aug. 5 high, but it couldn’t maintain momentum above the psychological 70-cent mark and ended four days in a row below its 50-day moving average.

The market touched the highs shortly after USDA reported U.S. all-cotton export sales for shipment this season rose to 223,700 running bales for the week ended Aug. 11 from 141,000 the prior abbreviated reporting period. This boosted 2016-17 commitments to 3.844 million RB, up 1.193 million from a year ago.

Commitments totaled 34 percent of the USDA export forecast, compared with 30 percent of final 2015-16 shipments at the corresponding point last season. Shipments of 181,700 RB brought exports for the season to 299,600 RB, up 70,000 RB from a year ago.

Traders continued to digest USDA supply-demand estimates showing U.S. projections considered neutral and world forecasts viewed as slightly bullish. The U.S. report marginally raised production and ending stocks from a month ago, with the farm price projected up 7 percent.

U.S. crop prospects were pegged at 15.88 million bales, up 80,000 bales from a month ago and the final 2015 output of 12.89 million. The 2016 increase of 3 million bales resulted from higher acres and yields.

Plantings remained estimated at 10.02 million acres, unchanged from the June report but up 1.4 million acres from 2015. Acres for harvest are projected at 9.53 million, indicating abandonment of 5 percent, down from 7.2 percent forecast in July and slightly below 6 percent in 2015.

Yields are estimated at 800 pounds per harvested acre, up from 766 pounds in 2015 but 15 pounds below the July forecast and 22 pounds below the five-year average.

Production on the Texas High Plains, the nation’s largest cotton patch, is projected at 4.07 million bales, 65 percent of the statewide output and 25 percent of the U.S. crop. This is up from last season’s 3.797 million bales and the largest crop since 2010.

Plantings are estimated at 3.59 million acres, up from 3.113 million last year, and harvested acres at 3.325 million, up from 2.886 million acres, with abandonment at 7.4 percent, up fractionally from 7.3 percent.

Yields are expected to average 588 pounds, down from 632 pounds in 2015 and the 10-year average of 690 pounds. That’s the second-lowest yield in 10 years, up from 567 pounds in the historic drought of 2011.

Domestic mill use and exports were unchanged from last month at 3.6 million bales and 11.5 million bales, respectively. Ending stocks rose 100,000 bales to 4.7 million. The stocks-to-use ratio of 31 percent is similar to that of 2015-16.

The marketing-year average price received by producers is forecast to range from 57 to 69 cents, with the midpoint of 63 cents up 4 cents from last month on recent price activity and tighter global cotton supplies.

Globally, projected 2016-17 ending stocks fell 1.68 million bales, or nearly 2 percent, this month to 89.61 million owing to a combination of lower beginning stocks and production.

Beginning stocks dropped 1.09 million bales to 99.18 million, mainly on revisions in China, India and Australia. Production declined 970,000 bales to 101.58 million, with reductions in China, India, Mexico and Argentina, partially offset by an increase for Brazil.

Global consumption and imports declined marginally, down 340,000 bales to 111.26 million and 300,000 bales to 34.05 million, respectively. This mainly reflected reductions in Vietnam and Pakistan. Exports slipped on a cut for Brazil.

Stocks outside the United States and China are projected at 36 percent of total use, similar to the estimated 2015-16 ratio. The ending stocks estimate for China fell 1.7 million bales to 50.7 million, 57 percent of the world total.

Coming into the week, U.S. cotton crop ratings dipped slightly as boll setting advanced to 88 percent, five percentage points ahead of the five-year average, according to USDA’s weekly report.

Cotton considered good to excellent was unchanged at 48 percent, but fair fell two points to 34 percent and poor to very poor increased two points to 18 percent. A year ago, good to excellent was 55 percent and poor to very poor 9 percent. Based on the USDA report, the DTN cotton condition index slipped four points to 117, down from 146 a year ago.

Conditions in Texas showed good to excellent cotton unchanged at 39 percent and poor to very poor up three points to 25 percent, compared with 46 percent and 11 percent, respectively, a year ago.

Boll setting expanded 18 points beltwide and was 15 points ahead of last year, while boll opening increased three points to 12 percent, up from 9 percent a year ago and 10 percent on average.

Meanwhile, trend-following funds boosted their net longs by 3,016 lots, or 3.5 percent, to 88,326 in cotton futures-options combined during the week ended Aug. 9. This was another new high — two sessions after the market topped — since the record of 92,331 lots in February 2008.

Index funds raised their net longs by 1,222 lots to 67,288, government traders-commitments also showed, while nonreportable traders increased theirs by 1,081 lots to 11,796. Commercials sold a net 5,319 lots, adding 6,658 shorts along with 1,339 longs to hike their net shorts to 107,410 lots.

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