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DTN Cotton Close: Market Moves Down as Traders Tweak Positions

Ernst Undesser
By Duane Howell DTN Cotton Correspondent December 11, 2017

DTN Cotton Close: Market Moves Down as Traders Tweak Positions

U.S. upland classing reached 11.827 million RB, up from 10.708 million RB graded a year ago. Crop estimate for China reduced and import estimate increased by U.S. agricultural attach.

Cotton futures settled lower for a second session Monday as traders tweaked positions in front of USDA’s monthly supply-demand report.

March finished down 72 points at 73 cents, near the low of its 103-point range from up 11 points at 73.83 to down 92 points at 72.80 cents. It closed below the prior-session low and its nine-day moving average.

May dropped 62 points to close at 73.58 cents, trading within an 81-point range from 74.17-to-73.36 cents. The other contracts settled down 15 to 70 points, with December 2018 down the least at 71.93 cents.

Volume slowed to an estimated 25,404 lots from 33,867 lots the prior session when spreads accounted for 14,022 lots or 41% and EFP nine lots. Options volume fell to 3,089 lots (1,790 calls and 1,299 puts) from 13,333 lots (6,074 calls and 7,259 puts).

U.S. upland classing rose to 1.555 million running bales during the week ended Thursday to bring the season’s total to 11.827 million RB, up 10% from 10.708 million RB graded through Dec. 8 last season.

Weather disruptions, backlogs at gins and clogged warehouses have slowed the flow of cotton this season, and traders expect only a fractional decrease in USDA’s U.S. monthly crop estimate on Tuesday.

A Bloomberg survey showed an average all-cotton crop estimate of 21.33 million statistical bales, down from USDA’s November forecast of 21.38 million bales and still up 24% from 17.17 million bales last season. Increased exports and decreased ending stocks also are expected.

Cotton tenderable on futures contracts accounted for 69.3% of the classing for the week and 74.8% for the season, compared with the prior week’s 70.3% and 75.7%, respectively.

Classing of 48,038 RB of Pima hiked the extra-long staple count for the season to 333,707 RB and the all-cotton total to 12.161 million RB, up from 11.027 million RB a year ago. Roughly, 61% of the estimated crop had been classed, compared with around 69% of final 2016 production last year.

Meanwhile, cotton production in China is estimated at 24.8 million bales in a U.S. agricultural attach report, down from 25 million forecast by USDA last month but 9% from last year.

Higher cotton prices last season and continued government support to cotton production stimulated acreage recovery, the Beijing post reported, and favorable weather contributed to higher yields.

China’s cotton consumption, the world’s largest, is expected to recover to 39.04 million bales owing mainly to the narrowing gap between domestic and world prices, the post said. This is little changed from USDA’s estimate last month of 39 million bales and is up from 37.5 million consumed last season.

Ending stocks are forecast at 40.09 million bales, down from 48.419 million last year and 103% of projected mill use. The USDA estimate last month was 39.67 million bales.

Given China’s increasing demand for high-grade cotton, traders expect the government may increase its flexibility in issuing additional import quotas, the report said.

Hence, China’s cotton imports are expected to increase to 5.971 million bales from 5.032 million last year, the post said. This is up from USDA’s November forecast for 2017-18 of 5.3 million bales.

After falling to the lowest in 14 years, China’s imports of U.S. cotton rebounded to 2.302 million bales in 2016-17 and are projected at 2.985 million bales in 2017-18, the post report said.

Futures open interest increased 1,688 lots to 253,097 on Friday, with March’s down 342 lots to 21,871 and May’s up 1,289 lots to 44,102. Certified stocks remained at 47,628 bales.

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Ernst Undesser
By Duane Howell DTN Cotton Correspondent December 11, 2017