Howell: Cotton rally stalls at seven-week high on sales decline

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A cotton futures rally to a seven-week high stalled amid U.S. old-crop export sales cancellations and lower-than-expected new-crop sales.

December still gained 127 points for the marketing week ended Thursday to close at 70.16 cents. It hit a high of 70.58 cents, highest intraday price since June 15 and up from the week’s low of 68.23 cents on Tuesday. It posted back-to-back closes above its 50-day moving average.

Dwindling certified stocks and uncertainty about excessive rains on crop prospects in India, the world’s largest cotton producer, offered support. So did a midweek dive in the U.S. dollar index to a new low for the move. Cert stocks fell to 27,577 bales, lowest since October 2016.

The market rose in the face of beneficial rains in the Texas High Plains, where estimates of acreage losses to earlier weather adversities have neared USDA’s national analytical assessment of abandonment in July.

Updated supply-demand estimates are scheduled for release on Thursday when USDA will report results of the National Agricultural Statistics Service’s first survey-based results for U.S. 2017 cotton production.

Combined net U.S. all-cotton export sales for 2016-17 and 2017-18 fell to 82,700 running bales during the week ended July 27 from 265,200 RB the previous week. Net cancellations of 56,400 RB were reported for 2016-17 and net sales of 139,100 for 2017-18.

All-cotton commitments for 2016-17 totaled 15.206 million RB, up 5.565 million RB or 58 percent from cumulative sales a year ago and about 108 percent of the USDA export estimate.

Unshipped old-crop commitments at the end of the marketing year July 31 were rolled forward, swelling new-crop bookings. Outstanding sales at the end of the reporting week were 895,000 RB.

All-cotton shipments of 284,500 RB, down from 334,700 RB the prior week, brought the season’s total to 14.311 million RB, 246,000 RB above the USDA forecast with four days left in the crop year.

Converting running bales to statistical 480-pound bales would suggest final shipments could range from 14.8 million to 14.9 million bales, up from the USDA estimate of 14.5 million. This would reduce the carryover to as low as 2.8 million bales from the current estimate of 3.2 million.

The stocks will be needed to meet export demand and consumption by domestic mills prior to volume movement of the new crop. Weekly crop progress reports have shown that squaring and setting of bolls are lagging the five-year averages.

Commitments for 2017-18 rose to 5.269 million RB, 40 percent of the forecast and up 2.525 million RB or 92 percent from year-ago forward sales that were about 20 percent of the current 2016-17 export estimate.

The July supply-demand estimates projected 2017-18 ending stocks at 5.3 million bales, largest since 2008-09 when stocks were 6.3 million bales. This was with beginning stocks estimated at 3.2 million bales.

On the crop scene, U.S. cotton conditions dipped during the week ended Sunday, with good to excellent up a percentage point to 56 percent but poor to very poor up two points to 12 percent, USDA’s weekly progress report showed. This was the third weekly decline in a row.

Good to excellent still was up six points from a year ago. The DTN cotton condition index, based on the USDA report, dropped four points to 136, lowest of the season but up from a reading of 125 a year ago.

Eighty-seven percent was squaring, four points behind last year and the five-year average, while boll setting at 46 percent lagged both by seven points.

In Texas, good-excellent dropped a point to 44 percent and poor-very poor rose five points to 20 percent, compared with 42 percent and 20 percent last year, respectively. Squaring at 83 percent and boll setting at 33 percent were behind the respective five-year averages of 89 percent and 40 percent.

Abandonment estimates from early season hail and wind damage on the High Plains remain about 20 percent across the 41-county area served by the Lubbock-based Plains Cotton Growers, Inc., discussion at the PCG’s latest advisory group meeting indicated.

This was reported by Mary Jane Buerkle, director of communications and public affairs, in PCG’s weekly newsletter. Conditions range from poor to excellent, she said, noting that some later-planted cotton has struggled. In other areas, however, growers applied growth regulators on fields green and lush with lots of blooms and good potential, she noted.

If applied to the two USDA crop reporting districts making up the High Plains, the advisory group estimate would mean a loss of 810,000 acres of from 4.055 million planted and intended for planting reported June 30. An additional 1.205 million acres were planted in cotton in the adjoining Rolling Plains.

The USDA estimated U.S all-cotton abandonment at 7 percent or 880,000 acres in its July forecast for a crop of 19 million bales off 12.06 million planted acres, 11.18 million harvested acres and a yield of 816 pounds per acre.

Meanwhile, trend-following funds raised their net longs for the first time in 10 weeks in ICE cotton futures-options combined during the week ended July 25, according to traders-commitments data reported by the Commodity Futures Trading Commission.

They covered 1,724 shorts and added 467 longs, lifting their net longs 2,191 lots to 17,251. Index funds nudged their net longs up 380 lots to 73,251, while non-reportable traders raised their net shorts 1,812 lots to 3,976.

Commercials sold a net 758 lots, adding 865 shorts and 107 longs to boost their net shorts to 86,525 lots. Combined open interest edged up 181 lots to 263,756.

In futures only, non-commercials’ net longs rose 1.1 percentage points to 12.4 percent of the open interest. They bought 2,455 lots, covering 1,879 shorts and adding 576 longs to hike their net longs to 26,931 lots. Open interest increased 482 lots to 216,584.

  • Duane Howell is retired farm editor of The Avalanche-Journal. He writes daily cotton market reports for DTN/Progressive Farmer. His e-mail address is [email protected]

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