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Weekly Cotton Comments                 08/16 05:25

   CCotton Finishes Marketing Week Mixed 

   Weekly export sales strong. U.S. crop estimate overstated?  Crop in 
Southwest pegged at second highest ever. World crop forecast to top third 
highest mill use on record. Hedge funds raised net shorts to a new record high 
as futures fell to the lowest since 2016 when prices had retreated from the 
all-time high of $2.27 in 2011. Mills priced 864 lots. 

By Duane Howell
DTN Cotton Correspondent

   Cotton futures finished mixed for the marketing week ended Thursday, with 
benchmark December the only contract on the plus side and it by merely four 
points. 

   December settled at 59.62 cents, touching a nine-session high on Thursday at 
60.18 cents and closing in the upper quarter of the week's 263-point range. 
March, which hit a new contract low at 58.55 cents on Monday, dipped 18 points 
for the week to settle at 60.24 cents, also in the upper quarter of its 
218-point range.

   The adjusted world price continued to hover slightly above the base U.S. 
loan rate, offering support for nearby futures, and is figured at 52.22 cents 
for the program week beginning today, down from 52.67 cents for the week ended 
Thursday. 

   The December-March spread traded as narrow as 51 points carry on Thursday, 
tightest since June 20, and gained 22 points for the week to end at 62 points. 
December 2020 dropped 41 points to settle at 62.96 cents. 

   December 2019 tested the contract low on Monday ahead of USDA's 
supply-demand estimates, retested it after release of the report, and cut a 
triple-digit loss almost in half but still finished the day below lows of the 
prior two sessions. It had entered the marketing week having exhibited a 
possible exhaustion move on a dive to back-to-back new lows on heavy volume. 

   The market jumped on Tuesday after the Trump administration said it would 
delay 10% tariffs on some Chinese products, including certain items of 
clothing, which had been scheduled to go into effect next month. But fears of 
an economic recession flared again on Wednesday when the 10-year Treasury note 
broke below the two-year rate, an odd bond market phenomenon considered a 
recessionary indicator.  Cotton ended that session little changed on 
indecisive, inside-range price action ahead of USDA's weekly export 
sales-shipments report the next day. 

   Cash online trading increased to 6,404 bales on The Seam from 2,629 bales 
the previous week. Prices rose to an average of 56.69 cents per pound from 
51.52 cents, ranging on daily averages between 49.82 cents and 59.84 cents. 
Loan redemption values averaged 51.78 cents, up from 47.84 cents, on daily 
averages ranging between 47.51 and 53.49 cents. 

   On the competitive-price front, the average of the five lowest-priced world 
growths for the Far East slipped 45 points to 69.47 cents, according to USDA 
calculations, while the lowest-quoted U.S. cotton landed there fell 50 points 
to 69.20 cents. World prices for the Far East as measured by the Cotlook A 
Index gained 60 points from a week ago to 70.90 cents as of Thursday morning, 
11.33 cents over the prior-session December close. 

   Turning to demand, net U.S. all-cotton export sales for this season and next 
reached a strong 476,500 running bales during the week ended Aug. 8, up from a 
combined 68,800 RB during the corresponding period last year. 

   Upland-Pima net sales of 325,300 RB for 2019-20 went to 17 countries, led by 
Bangladesh, Vietnam, Turkey, Mexico and Malaysia. China canceled 17,600 RB for 
2019-20 and led buyers for 2020-21 on purchases of 117,900 RB. Commitments for 
2019-20 climbed to 7.929 million RB, 47% of the USDA export forecast, compared 
with 8.552 million RB a year ago and 62% of final 2018-19 shipments. 

   Net sales of 151,200 RB for next season went primarily to China, Mexico and 
Vietnam and brought 2020-21 commitments to 452,600 RB, against 1.341 million RB 
in forward bookings last year. 

   All-cotton shipments of 286,700 RB, up from 244,800 RB a year ago, lifted 
total 2019-20 exports to 331,600 RB, up from 293,600 RB last year. Shipments 
went to 24 countries, headed by Vietnam, India, Turkey, Bangladesh and 
Indonesia. Shipments averaging roughly 326,400 RB a week are required to reach 
the estimate.

   A prospective 22.5-million-bale crop, up 500,000 bales from the July 
forecast and the largest since 2005, and a surprising 200,000-bale hike to 7.2 
million in export prospects, nearly 3 million bales above the downwardly 
revised 2018-19 tally, stood out as a couple of highlights of the U.S. August 
supply-demand estimates. 

   This would mark the third consecutive season for the U.S. crop to exceed 
demand, with ending stocks projected up 500,000 bales from the July estimate to 
7.2 million, up from 5.25 million bales in 2017-18 and 4.3 million bales in 
2017-18. The stocks-to-use ratio would rise to 35.5%, highest since 2008-09 and 
from 30.5% last season. 

   Skeptics asserted that the crop forecast, USDA's first survey-based estimate 
of the 2019 crop and based on conditions around Aug. 1, appeared overstated. 
Compared with the final crop tally, the August forecast during the last 20 
years has been above it 12 times and below it eight times.  Past differences 
between the August forecast and the final tally indicate that chances are two 
out of three for the 2019 upland crop to range between 20.1 million and 23.3 
million bales. The 2019 upland crop is estimated at 22.5 million bales and the 
Pima crop at 790,000 bales, up 23% and down 1%, respectively, from 2018. 

   By regions, upland production is expected to increase in each Cotton Belt 
region this season: up 1.436 million bales to 5.685 million in the Southeast, 
with Georgia up 745,000 bales to 2.7 million; 854,000 bales to 5.56 million in 
the Mid-South, with Mississippi up 188,000 bales to 1.65 million; 1.864 million 
bales to 9.737 million in the Southwest, with Texas up 1.55 million to 8.4 
million; and 6,000 bales to 744,000 in the West. 

   Production in the Southwest is projected at the second highest on record, 
behind 10.487 million bales in 2017, and at 45% of the U.S. crop. In the Delta 
states, an all-time high yield of 1,128 pounds per harvested acre is projected 
for Tennessee. 

   The higher export forecast is linked to larger supplies -- both from the 
bigger crop and higher beginning stocks stemming from the downward revision in 
2018-19 exports -- and to a 3.1-million-bale increase from last year to nearly 
43.9 million in global trade. 

   World ending stocks came in about as expected, up 2.03 million bales from 
the July estimate and 2.18 million from beginning stocks to a four-year high at 
82.45 million. Beginning stocks rose by a million bales on the month, largely 
on a 500,000-bale decline in 2018-19 consumption. 

   Global production is forecast at 124.6 million bales, up 6.4 million bales 
or 5% from 2018-19, and consumption at 123.1 million bales, up 2.5 million 
bales or 2% from last season. If achieved, mill use would reverse last season's 
decrease and reach the third highest on record, behind only 2006-07 and 
2007-08. Modest global economic growth is expected to support the increase in 
cotton consumption, USDA says. 

   U.S. crop conditions improved slightly during the week ended Sunday, with 
good to excellent edging up two percentage points to 56%, according to USDA's 
weekly report, and poor to very poor declining three points to 10%.  A year 
ago, good-excellent was 40% and poor-very poor was 34%. 

   Cotton setting bolls advanced 18 points to 77%, up two points from last year 
and a point above the five-year average, and boll opening at 20% was up eight 
points and 10 points, respectively. Good-to-excellent cotton improved six 
points to 52% in Texas, fell six points to 57% in Georgia and dropped four 
points to 55% in Mississippi. 

   Producers at a meeting of the Lubbock-based Plains Cotton Growers, Inc., 
advisory group on Aug. 9 voiced mostly pleasant surprise that dryland cotton 
had held up relatively well under hot, predominantly dry conditions. Showers 
had helped in some areas but a general rain was needed. Deep taproots had 
tapped into declining subsoil moisture, helping to sustain the crop. Some 
cotton showed signs of stress. Shedding of squares and small bolls appeared 
likely, reports indicated, as a natural adjustment of fruit load. 

   District estimates pegged the High Plains crop at 4.93 million bales, up 
995,600 bales from last season and 58.7% of the projected Texas output.  The 
crop is projected down 493,300 bales in the higher-yielding, more heavily 
irrigated northern High Plains, hit by early season weather adversities, and up 
1.489 million bales to 3.545 million in the southern district with a large 
amount of dryland and "semi-irrigated" acreage. 

   Planted acres slipped an estimated 357,000 from last year to 4.44 million 
across the High Plains as a whole, but projected acres for harvest rose by 
1.204 million to 3.63 million. This would mean an abandonment of 810,000 acres 
or 18.2%, down from last year's drought-decimated 2.371 million acres or 49.4%. 
Yields are estimated at 651.9 pounds per harvested acre, down from 788,300 
pounds last year when irrigated acreage made up the preponderance of the total. 

   With an additional 1.185 million bales projected in the adjoining Rolling 
Plains, up 529,200 bales from last year, the combined output in the Plains 
region is estimated at 6.115 million bales, 72.8% of the Lone Star State's 
upland production. The combined Plains output also amounts to 27.2% of the U.S. 
all-cotton estimate in a region known for volatile crop swings, underscoring 
knowledge that lots of things -- good or bad -- could happen before this crop 
is in the bale. 

   Meanwhile, trend-following funds sold 5,251 lots in cotton futures-options 
combined during the week ended Aug. 6 to boost their net shorts to a new 
all-time high of 52,461 lots, according to the latest traders-commitments data 
reported by the Commodity Futures Trading Commission. 

   Those funds added 3,826 shorts and liquidated 1,425 longs. Index funds 
nudged their net longs up 72 lots to 55,097, while non-reportable traders 
flipped to net short 1,164 lots from net long 56 lots. Commercials bought a net 
6,400 lots, adding 9,490 longs and 3,090 shorts to lower their net shorts to 
1,472 lots. 

   December prices that week ranged from 63.97 to 57.26 cents, the contract low 
and the lowest since 2016 when the low for the year was 54.33 cents set on the 
July contract on Feb. 29. That 2016 low had followed an excessive spec-led 
splurge to the all-time high of $2.27 posted on the March contract on March 7, 
2011. Combined futures-options open interest during the reporting week rose by 
22,429 lots to a delta-adjusted 281,148, the sixth increase in a row for a 
total of 58,536 lots. 

   Separately, CFTC on-call data showed mills priced a total of 864 lots last 
week, trimming their unpriced sales to 91,063 lots, while producers priced 517 
lots, cutting their unfixed position to 61,612 lots. The net call difference 
declined 347 lots to 29,461, 13.9% of the OI, down from 14.8%.  The mill 
unpriced sales amounted to 42.9% of the expanded OI, down from 45.5%. 


(KR)

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