Friday, May 16, 2014

DTN Cotton Close: Extends Losing Streak to Six Sessions

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July finished at its lowest close since March 5. Mills priced a modest 168 on-call lots of old-crop cotton and added 840 lots in December in the latest CFTC reporting week.

Cotton futures extended a losing streak to six sessions in a row Friday, finishing at the lowest close in spot July since March 5.

July settled down 54 points to 89.82 cents, just off the low of its 108-point range from up 48 points at 90.84 to down 60 points at 89.76 cents. It slipped through longstanding chart support around 90 cents to near another support point at 89.71, the low of March 24.

December closed off 28 points to 82.34 cents, trading from up 18 points at 82.80 to down 44 points at 82.18. It posted its lowest intraday price since April 25 and lowest close since April 21.

For the week, the market shed 254 points in July and 137 points in December. The inverted July-December spread lost 117 points, closing at a 748-point premium on July. The close matched the low seasonal settlement on Tuesday when it traded down to 708 points, lowest since January.

Volume slowed to an estimated 12,200 lots from 16,312 lots the previous session when spreads totaled 4,199 lots or 26% and EFP 42 lots. Options volume totaled 2,085 calls and 4,070 puts.

Mills priced a modest 168 on-call lots of old-crop cotton during the week ended last Friday to trim their unfixed July position to 30,345 lots, according to the latest Commodity Futures Trading Commission call report.

Producers priced 543 lots to shave their small unfixed position to 1,456 lots. The net call difference widened 375 lots to 28,889 (2.889 million bales), which was 24.07% of July’s declining open interest, against 23.48% a week earlier.

The unfixed mill position in July outweighed that of producers by a ratio of 20.84:1, up from 15.26:1 the prior week. Mill fixations are expected to quicken ahead of first notice day for July deliveries on June 24. Scale-down mill pricing this week may have slowed the July descent.

Producers priced 789 lots in December during a reporting week in which the new-crop contract posted two new seasonal intraday highs, reaching up to 84.74 cents on May 8. This reduced their unfixed December position to 18,401 lots.

Mills added 840 December lots to hike their unfixed position there to 12,872 lots. The net call difference held by producers narrowed by 1,629 lots to 5,529, which totaled 8.32% of December’s rising open interest, down from 11.77%.

Meanwhile, repayments reduced U.S. outstanding loans on upland cotton by 123,242 running bales during the week ended May 12, according to the latest USDA figures.

Upland loans outstanding declined to 898,866 bales, including 65,211 bales of Form A issued to individual growers and 833,655 bales of Form G issued to marketing cooperatives or loan servicing agents.

Futures open interest declined 1,420 lots Thursday to 191,108, with July’s down 1,930 lots to 114,395 and December’s up 330 lots to 68,321. Certificated stocks grew 4,031 bales to 405,712. There were 5,196 newly certified bales, 1,165 bales decertified and 4,963 bales awaiting review.

World values as measured by the Cotlook A Index dropped 15 points Friday morning to 92.55 cents. The premium to Thursday’s July futures settlement widened 19 points to 2.19 cents.

Forward A Index values for 2014-15 slipped 25 points to 90.05 cents, widening the discount to the 2013-14 index by 10 points to 2.50 cents and the premium to Thursday’s December futures close by a point to 7.43 cents.

For the week, the index for 2013-14 lost 175 points and the new-crop index fell 65 points.

DTN Closing Cotton Commentary          09/12 14:51

   Cotton Finished Mixed for Day, Ahead for Week

   China's excess stocks reported "likely to be around for a while."  U.S. 
export commitments described as strong at 52% of the new USDA estimate.

By Duane Howell
DTN Cotton Correspondent

   Cotton futures settled mixed Friday as benchmark December finished with a 
fractional loss after nudging up to a new seven-week high. 

   December closed down nine points to 68 cents, right on the midpoint of its 
97-point range from down 58 points at 67.51 to up 39 points at 68.48 cents.  It 
posted its highest intraday price since July 22. 

   Nearby October closed down 18 points to 70.61 cents and March settled up 47 
points to 67.43 cents.  For the week, the market gained 453 points in October, 
369 points in December and 329 points in March. 

   Volume slowed to an estimated 24,100 lots from a final 32,794 lots the 
previous session when spreads accounted for 10,858 lots or 33.1%, EFS 94 lots 
and EFP five lots.  Options volume totaled 3,455 calls and 7,193 puts. 

   China's price support and import policies have resulted in its stocks-to-use 
ratio surging to a record 180% in 2013-14, USDA's Foreign Agricultural Service 
says in a circular on world markets and trade. 

   In contrast, the ratio averaged 49% from 2002-03 through 2008-09.  This 
would imply that current stocks are more than 45 million bales above average, 
equal to more than 2-1/2 years of U.S. production. 

   In an understatement, Chinese officials have said the stocks are abnormally 
high and should be reduced. 

   To return to "normal" levels, China would have to produce less, consume 
more, and-or reduce net imports.  Production would have to drop by 25% from the 
current output for six years, consumption to rise by 20% for more than six 
years, or imports would have to be reduced to the World Trade Organization 
tariff rate quota level for 16 years. 

   Given the magnitude of this situation, implementing policies to reduce 
stocks will be a daunting endeavor.  China's excessive stocks thus are "likely 
to be around for a while," FAS concludes. 

   China's 2014-15 stocks-to-use ratio is projected at 170%.  The USDA's World 
Agricultural Outlook Board forecast China's 2014-15 stocks at 62.91 million 
bales, up from the 2013-14 carryout of 61.96 million, and consumption at 36.5 
million bales, up from last season's 34.5 million. 

   In the U.S. supply-demand revisions, the 150,000-bale reduction from a month 
ago in 2013-14 ending stocks to 2.45 million bales resulted in the old-crop 
stocks-to-use ratio slipping to 17.4%, second smallest to 14.2% in 2010-11 
since 1995-96 when the SUR also was 14.2%.

    This perhaps could be viewed as lending credence to talk that China's 
cancellation of 105,900 running bales of upland export sales in the latest 
reporting week could be attributed largely to a scarcity of uncommitted nearby 
supplies and origin switches to foreign growths.  Yet traders also worried that 
the cancellations could be the forerunner of more to come. 

   In any event, despite the cancellation, U.S. 2014-15 export commitments 
remain strong at 5.078 million running bales, up 30% from a year ago and 52% of 
USDA's downwardly revised September forecast.  A year ago, export commitments 
were 38% of final shipments. 

   Separately, U.S. new-crop upland loans outstanding rose by 5,157 bales to 
32,822 during the week ended Sept. 8 and old-crop upland loans fell 3,150 bales 
to 19,498, USDA figures showed. 

   Futures open interest expanded 1,559 lots Thursday to 184,216, with 
December's up 159 lots to 112,100 and March's up 853 lots to 55,429.  Cert 
stocks were unchanged at 53,056 bales. 

   World values as measured by the Cotlook A Index gained 60 points Friday 
morning to 75.80 cents, narrowing the premium to Thursday's December futures 
settlement by 35 points to 7.76 cents.  The index gained 265 points for the 


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