Johnson On Cotton: Upbeat Domestic News Helps Cotton Monday
After several lackluster sessions, U.S. cotton futures enjoyed a resurgence Monday, with a 200 point trading range and its best futures volume in nearly a week (15,738 contracts).
Depressing news about China’s economy via its Purchasing Managers Index had Asian stocks off, along with some U.S. commodities, including cotton early on.
However, U.S. manufacturing data was upbeat and higher European and U.S. stock values along with gains in energy turned cotton around at or near 11:15 AM EDT. By the close, a combination of spec buying associated with re-alignment of positions after month/quarter-end and limited mill/merchant activity resulted in a rise of 153 pts in the Dec 13 contract by the close and its best settlement in 7 sessions.
Crop progress and condition data was released Monday afternoon with 37% of the U.S. cotton crop squaring, down 8% from the 5-year average. Boll setting progress was also released with 6% of the crop to this stage, 5% less than the 2008-2012 average. Those states noticeably behind include Georgia, Mississippi, Missouri, North Carolina, Tennessee and South Carolina.
Overall, the U.S. cotton crop showed a modest improvement with 47% rated good or excellent, 4% better than a week ago and the same as a year ago.
There were 757 notices issued Monday evening, some of which came from Newedge, the same house also taking delivery. Since some of the deliverable stocks have questionable qualities or borderline ratings, the merchant working through Newedge may be re-delivering undesirable cotton. There have been 2,317 notices involving the Jul 13 contract to date.
Based on what has been delivered and the remaining open interest in the July 13, about 3,400 contracts or 340,000 bales will be delivered by the last notice day, July 16. As of Monday morning, certificated stocks had risen to 623,467 with another 54,646 under review for a possible total of 678,113 bales. The question not yet addressed by the market is what will be the outcome for the remaining cotton in deliverable position not taken by Newedge ‘ s client.
Trouble appears to be brewing with U.S. cotton as currency changes have made it less competitive as evident with the lack of sales, if not cancellation of sales, with old and new crop. More worrisome is the slow delivery pace of late. I will address this issue in my pre- U.S. U.S.DA cotton supply & demand report later this week.
Monday ‘ s outside reversal close in cotton put the bulls back in good humor. My technician, Dave, may have a negative view for the month of July but he was impressed by the day’s action as well but with a caveat.
He wrote: “Is December cotton serious about the show of strength on Monday? How it responds to the half way point at 86.30 will give us that verdict.”
As discussed in my report Sunday night, mills have been stepping away from cotton, even at the lower levels of late, needing even further discounts. In the light volume mode that is typical of summer trading months, cotton futures can run up several cents, but the problem is sustaining such a move.
Without additional crop concerns abroad or additional sizeable losses to the U.S. crop, staying in the high 80′ s will be difficult.
Sharon C Johnson, @Copyright 2013
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The cotton market experienced a very fun and exciting week as trading focused on strong fundamentals factors, both of the bullish and bearish variety. Many have been left perplexed with