Weekly Cotton Comments 01/17 05:27
Cotton Ends With Modest Marketing Week Loss
Trade deal could boost cotton exports, NCC says. Weekly export sales
improved; shipments second highest of crop year. U.S. crop cut less than
expected; stocks-use ratio up fractionally from last year. Global crop and mill
use margin narrowed. Hedge funds raised net longs 8,115 lots as prices rose.
Brazil crop forecast increased.
By Duane Howell
DTN Cotton Correspondent
After hitting new eight-month highs two sessions in a row on follow-through
buying, cotton futures gave ground three sessions in a row to close the
marketing week with a modest loss.
Grains and soybeans also closed lower following the signing on Wednesday of
the U.S.-China Phase One trade deal in what some analysts depicted as a classic
"buy the rumor, sell the fact" reaction. Skepticism about the amounts and
timing of China's purchases of U.S. agricultural products may have contributed
to the setbacks.
Spot March cotton slipped 47 points to close the week ended Thursday at
70.22 cents, below an uptrend channel coming into the day at 70.43. It traded
within a 223-point range from 71.96 cents on Monday, highest since May 9, to a
five-day low on Thursday at 69.73. March spent Thursday within a tight 65-point
span and ended with a marginal loss near the high, supported partly by improved
weekly export sales and a jump in shipments.
Some cotton traders may have decided amid extremely overbought readings that
it was time to pocket some profits after seven calendar week gains in a row.
May dropped 67 points to settle at 71.19 cents, July fell 75 points to 72.08
cents and December dipped 22 points to 71.89 cents.
Volume increased to an average of 36,856 lots per session from 34,789 lots
the previous week but slowed Thursday to a six-day low to 27,616 lots. Open
interest grew 15,755 lots to 251,621, with March's down 1,912 lots to 123,768,
May's up 6,165 lots to 57,617, July's up 8,512 lots to 35,166 and December's up
2,125 lots to 31,480. Cert stocks declined 2,098 bales to 6,792, lowest since
Oct. 31, 2017, when they fell to 1,711 bales.
Cash online sales increased to a four-week high to 101,350 bales from 96,408
bales. Prices rose 115 points to an average of 62.77 cents per pound, while
premiums over loan redemption rates gained 86 points to an average of 11.09
cents. Grower-to-business sales totaled 93,508 bales, up from 91,972, and 7,842
bales, up from 4,436 bales changed hands on the business-to-business exchange.
The National Cotton Council believes the Phase One trade deal with China
could provide "a much-needed boost" to U.S. cotton exports, noting that the
agreement includes a chapter on agriculture with Chinese purchases intended to
reach at least $40 billion a year starting in 2020.
However, the overall impact for cotton remains uncertain as
commodity-specific details haven't been released. Vice Premier Liu He of China,
who signed the deal with President Trump, said the agricultural purchases would
be "based on market conditions." Beijing earlier had balked at committing to
set amounts of U.S. farm goods.
"While we welcome Phase One and are hopeful about the potential for future
increased sales to China, U.S. cotton producers continue to face a challenging
economic climate," NCC Chairman Mike Tate, an Alabama cotton producer who was
at the White House for the signing, said in a statement. "As such, we
encourage President Trump and USDA to follow through with the third tranche of
MFP payments as quickly as possible."
Tate referred to the administration's $16 billion trade assistance package
through the Market Facilitation Program to help mitigate China's retaliatory
tariffs. This assistance, administered by USDA, has been very timely with U.S.
cotton's economic health deteriorating as market share in China is being lost
to Brazil and Australia, he said. The first MFP tranche of payments came in
August and the second tranche in November.
"Since the middle of 2018, the ongoing trade dispute between the United
States and China has been front and center in any discussion of the cotton
market," Tate said. "Cotton prices remain well below pre-dispute levels due to
China's imposition of a 25% retaliatory tariff. That's why removal of these
tariffs should be a high priority for any upcoming dialogue between the two
U.S. all-cotton export sales for this season and next rose to a combined
281,600 running bales during the week ended Jan. 9, USDA's weekly report
showed. Sales rose from 162,700 RB the previous week, with current-crop sales
of 267,100 RB up from 157,200 and Pima or extra-long staple sales at a
marketing year high of 34,300 RB. New-crop sales of 14,500 RB lifted 2020-21
commitments to 1.053 million RB, far below forward bookings a year ago.
Net upland sales for 2019-20 came in at 232,900 RB, up 53% from the prior
week and 19% from the four-week average, on gross sales of 239,600 RB and
cancellations of 6,600 RB. Sales went to 16 countries, led by Vietnam,
Pakistan, Turkey, Taiwan and Bangladesh.
All-cotton exports quickened to 309,100 RB, largest since the week ended
Aug. 15 and the second largest of the marketing year. Upland shipments of
301,700 RB, up 43% from the prior week and 42% from the four-week average, went
to 22 countries, headed by Vietnam, Pakistan, Turkey, China and Indonesia.
The market finished last Friday with a moderate gain after USDA's
supply-demand report showed U.S. 2019-20 all-cotton production is forecast at
20.102 million bales, down 104,000 bales from a month ago but up 9.4% from the
prior year. Upland output is pegged at 19.38 million bales, down 100,000 from
last month but up from 17.566 million last year, and the Pima crop at 722,000
bales, down 4,000 and from 801,000 bales, respectively.
Some widely circulated trade estimates had indicated expectations had been
for a crop reduction for the month ranging from 200,000 to 700,000 bales. The
USDA cut mainly reflected a 200,000-bale cut to 6.4 million in the upland crop
in Texas, partially offset by increases in other states.
The annual crop summary, which will be fine-tuned in May, revised the
all-cotton planted area down 20,000 acres to 13.74 million and reduced
harvested acres 710,000 to 11.8 million. Abandonment rose to 1.94 million acres
or to 14.1% from the previous estimate of 1.25 million acres. Yields were hiked
42 pounds to 817 pounds per harvested acre, up from 775 pounds last season but
down from the five-year average of 852 pounds.
By regions, upland crop estimates compared with a year ago included 5.7
million bales in the Southeast, up 75,000 bales, with Georgia up 50,000 to 2.65
million; 5.56 million in the Mid-South, up 40,000, with Mississippi unchanged
at 1.6 million; 7.33 million in the Southwest, down 200,000; and 790,000 in the
West, down 15,000.
The biggest changes in Texas came on the High Plains, down 90,000 bales to
3.235 million, and the adjoining Rolling Plains, down 160,000 bales to 690,000.
The High Plains crop fell from 3.934 million bales last season to the smallest
Confirming earlier reports of late-season plow-ups, harvested acres on the
High Plains declined 510,000 from the December estimate to 2.99 million as
abandonment jumped to 1.365 million acres or 31.3%. Yields leaped from the
December skew to 780 pounds per harvested acre, compared with 778 pounds last
U.S. market offtake estimates remained unchanged, with exports at the
second-highest ever at 16.5 million bales and domestic mill use at 3 million
bales. The USDA has maintained the export forecast five months in a row while
reducing China's total imports 1.5 million bales to 8.5 million and cutting its
domestic cotton use, the world's largest, a million bales to 38.5 million.
With the U.S. demand projection unchanged from last month, the production
decrease lowered the ending stocks forecast by a similar amount to 5.4 million
bales, still the highest since 2008-09. However, the more relevant
stocks-to-use ratio of 27.7% is only fractionally changed from last season's
27.3% and is down from 35.5% foreseen in August, the first month of cotton's
2019-20 marketing year.
Globally, the margin by which world production is expected to exceed
consumption narrowed 580,000 bales on the month to 260,000. Production is
projected down 630,000 bales to 120.48 million and consumption is virtually
unchanged at 120.22 million. World trade is forecast down 55,000 bales to 43.8
million, largely owing to a 500,000-bale drop to 8.5 million in China's
With world ending stocks down 730,000 bales from a month ago to 79.59
million, the global carryout is projected little changed from last season at
79.53 million, but stocks outside China are expected to rise 3 million bales to
Meanwhile, trend-following funds bought 1,896 lots to boost their net longs
to 8,115 lots in cotton futures-options combined during the week ended Jan. 7,
according to the latest supplemental trader-commitments data reported by the
Commodity Futures Trading Commission. They covered 1,362 shorts and added 534
Index funds bought a net 4,197 lots to raise their net longs to 76,447 lots
and non-reportable traders bought a net 748 lots to lift theirs to 8,774 lots.
Commercials sold a net 6,843 lots, adding 9,227 shorts and 2,384 longs to push
their net shorts up to 93,336.
Managed money traders sold a net eight lots to nudge their net longs down to
20,879, according to disaggregated data. They added 267 shorts and 259 longs.
Prices during the reporting week ranged from 68.50 to 70.25 cents, basis
March, highest since May 13 for the second straight marketing week. Combined
open interest expanded 19,007 lots to a delta-adjusted 280,091.
On the international scene, Brazil's CONAB has raised the country's 2019-20
cotton production forecast to the equivalent of 12.655 million 480-pouund
bales, up about 1% from its projection a month ago and also up 1.1% from last
The increase, up from USDA's latest unchanged forecast of 12.5 million
bales, is because of an estimated rise in planted area to 1,661,500 hectares
(4.1 million acres).
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