Weekly Cotton Comments 07/10 11:17
Cotton Climbs Highest Since March 5
Heat wave, drought takes toll on Plains crop. Big U.S. 2021 crop production
cut expected. Cash online sales jumped as MLG fell. Crop improved slightly to
43% good to excellent. Puny export sales reported, but shipments topped pace
needed to make estimate. Hedge funds raised net longs to 4,227 lots. China
auction sales from reserves will continue through September; offerings to total
up to 2.3 million bales.
DTN Contributing Cotton Analyst
A heat wave and intensifying drought on the Texas High Plains as traders
looked for a big reduction in the U.S. production estimate helped to drive
cotton futures to a new rally high.
December gained 94 points or 1.8% to finish the holiday-shortened marketing
week ended Thursday at 63.89 cents after hitting its highest price since March
5. It closed up 13.71 cents or 27.3% from its contract low on April 2. After
achieving a 61.8% retrace of the fall from its January high of 73 cents to the
April 2 contract low of 50.18, December ended slightly above the middle of its
245-point range from 62.45 on Monday to 64.90 on Thursday.
The two-week breakout featuring a gain of 419 points -- triggered initially
by USDA's much lower-than-expected estimate of planted acres -- now has marked
Tuesday's 62.55 low as nearby support. December has made seven consecutive
July lost 132 points on its final trading day to go off the board at 63.34
cents, still up 29 points for the week. The December-March spread narrowed 12
ticks for the week to settle at 60 points of carry.
Volume for the four-day trading week eased to 21,730 lots from 22,306 lots.
Open interest coming into Thursday had expanded 4,099 lots from a week earlier
to 170,877, with December up 470 lots to 118,769, March up 777 lots to 24,509
and December 2021 up 993 lots to 13,373. Cert stocks declined 37,261. July
delivery notices have totaled 375 lots.
Cash online sales, spurred by a falling marketing loan gain, quickened to
24,055 bales, a four-week high, with 16,288 bales changing hands on Thursday.
Prices edged up 10 points to an average of 57.45 cents per pound, with premiums
over loan rates dropping 71 points to 5.67 cents. The turnover included 23,263
bales on the grower-to-business exchange and 792 bales on the
On the competitive front, the average of the five lowest-priced world
growths for the Far East gained 135 points to 68.73 cents, while the
lowest-priced U.S. growth of comparable quality landed there gained 257 points
to 71.72 cents. The U.S. premium thus widened 122 points to 2.99 cents.
The adjusted world price for the program week beginning today, reflecting
quality and transportation differentials, is 51.58 cents, reducing the
marketing loan gain to 0.52 of a cent from 1.87 cents.
On the weather scene, a prolonged period of record to near record heat is
forecast to continue through at least the middle of next week on the Texas High
Plains where daytime highs are forecast at 105 degrees or higher through
Wednesday and 108 to 110 degrees in the nearby Rolling Plains. "Normal" or
average high temperatures for this time of year are in the lower 90s at
Lubbock, with lows in the upper 60s.
Temperatures by Wednesday would have hit the century mark for 13 days at
Lubbock just since June 29, compared with 19 days in all of 2019. The average
per year is 10 days on a long-term average back to 1914. Overnight lows also
are expected to remain well above normal, ranging between 78 and 81 at Lubbock.
Spotty, light showers may develop but aren't expected to dent the heat or
Heavy abandonment of dryland cotton is being tabulated and the heat and
dryness are expected to stress the capability of irrigation to meet crop
demands, especially in areas with smaller wells.
Traders expect the updated U.S. 2020-21 production forecast, scheduled for
release by USDA at 11 a.m. CDT today, to come in at 18.04 million bales, down
from 19.5 million bales projected last month prior to the sharply reduced
planted area estimate. Analysts' estimates ranged from 17 million to 19.2
million bales. Ending stocks were pegged at an average of 6.9 million bales,
down from USDSA's 8 million in June.
World ending stocks are expected to drop to 103.9 million bales from 104.67
million in June. Those still would be the largest since 2014-15.
The U.S. all-cotton planted area estimate of 12.185 million acres, down 11%
from last year, will be reviewed and subject to change in August when USDA's
National Agricultural Statistics Service will begin in-field surveys. Certified
acreage data also will be available next month.
Differences of the mid-year planted acres estimate and the final figure
during the last 20 years for upland cotton have averaged 309,000 acres, ranging
from 3,000 to 992,000 acres. The June estimate has been below the final 11
times and above nine times. Upland 2020 plantings are estimated at 11.999
million acres, down from 13.507 million last year.
On the demand front, puny U.S. weekly export sales may have helped to cap
the rally, though shipments again topped the pace needed to make the USDA
estimate for 2019-20.
Net all-cotton sales for this season and next slumped to a combined 56,900
running bales during the week ended July 2 from 318,200 the previous week and
two-crop sales a year ago of 95,300, USDA's weekly report showed. Those were
the smallest since May 28 when cancellations outweighed gross sales for 2019-20
and cut two-crop sales to 2,800 RB.
All-cotton 2019-20 net sales of 46,600 RB for 2019-20 nudged commitments up
to 17.614 million RB, up 1.569 million or 10% from a year ago and still 121% of
the USDA estimate. Upland net sales of 43,800 RB, down 74% from the prior
four-week average, reflected gross sales of 49,500 and cancellations of 5,700.
China took a net 22,000 RB.
Upland-Pima sales of 10,300 RB for 2020-21, down from 246,200 the prior week
and 41,200 a year ago, brought new-crop commitments to 3.534 million RB,
620,000 RB below forward sales a year ago. Commitments were 23% of the June
export forecast; year-ago bookings were 29% of the current 2019-20 projection.
All-cotton shipments of 336,600 RB moved ahead of the pace needed to make
the estimate, rising from 281,400 the week before but a bit behind 344,000
during the corresponding week last year. Upland shipments of 329,300 RB, up 7%
from the four-week average, went to 21 countries, led by China, Vietnam,
Turkey, Pakistan and Bangladesh.
Exports for the season reached 13.334 million RB, up 753,000 or 6% from a
year ago and 92% of the estimate. Upland-Pima shipments averaging roughly
303,400 RB weekly would achieve the forecast.
Back on the crop scene, U.S. cotton rated good to excellent improved two
percentage points to 43% during the week ended Sunday, USDA reported, while
poor to very poor dipped a point to 23%. Those ratings were down 11 points and
up four points, respectively, from a year ago.
Squaring cotton advanced 12 points to 47%, up 12 points from a year ago but
a point below the five-year average, and boll setting increased four points to
13%, up two points and even, respectively.
In top-producing Texas, poor to very poor cotton remained at 36%, still
above the 22% good to excellent, which edged up a point. The statewide crop
index of 54 was 12 points below a year ago. Forty percent was squaring and 14%
was setting bolls, compared with five-year averages of 38% and 12%,
On the money flow front, trend-following funds bought 2,790 lots in cotton
futures-options combined during the week ended June 30, raising their net longs
to 4,227, according to the latest supplemental traders-commitments data
reported by the Commodity Futures Trading Commission. They covered 2,376 shorts
and added 364 longs.
Index funds bought 779 lots to push their net longs up to 62,105, while
non-reportable traders bought 965 lots to lift theirs to 2,444. Commercials
sold 4,484 lots, adding 5,034 shorts and 550 longs to boost their net shorts to
68,776. Combined hedge fund and spec buying of 3,705 lots hiked their net longs
Prices during the reporting week ranged from 58.80 to 61 cents, basis
December. Combined open interest increased 4,033 lots to a delta-adjusted
194,639, compared with 228,611 lots as of July 2 last year.
On the international scene, a Chinese auction sales series from the state
reserves began July 1 and will continue through September, Cotton Outlook has
The daily volume offered for sale, converted here to 480-pound bales, will
be the equivalent of around 36,700, compared with 45,900 in 2019, up to a
combined total of about 2.3 million. The sales are aimed at "optimizing the
structure and quality composition of the reserves."
In other words, the cotton sold is expected to be replenished to improve the
quality and lower the price of the reserve stocks.
Perhaps 8.04 million bales of the reserve stocks consist of domestic cotton
procured as far back as the 2011-12 season. Around 1.7 million bales of
Xinjiang high grades were added between December 2019 and March this year, and
an additional 1.84 million to 2.07 million bales of imports, mainly Brazilian,
entered the reserve in 2018 and 2019.
Added to the recent imports of U.S. cotton and the volume in commercial and
industrial hands, China's supply appears ample for the time being, Cotlook says.
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