DTN Cotton Close: Modestly Ahead, Higher for Week

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December closed on new contract high settlement. Mills priced a net 1,052 on-call lots in May-July combined. China sets three-year Xinjiang cotton target price.

Cotton futures finished on modest gains for the day and higher for the week Friday, with May bouncing from an overnight dip just below the prior-day low to post its fourth close in a row on the plus side.

May settled up 19 points to 78.36 cents, in the upper half of its tight 70-point range from down 27 points at 77.90 to up 43 points at 78.60 cents. It had set the range for the day by 7:30 a.m. CDT and chopped back and forth into the close, finishing with a weekly gain of 107 points.

July closed up 26 points to 75.63 cents, trading from 78.90 to 79.52 cents and finishing up 101 points for the week. December matched its contract high at 75.64 cents and closed up 17 points to 75.63 cents, a new contract high settlement and up 34 points for the week.

December has finished on four new contract high closes the last 10 sessions, separated by just 19 points.

Volume slowed to an estimated 16,834 lots from 22,703 lots the prior session when spreads accounted for 9,944 lots or 44%, EFP 143 lots and EFS 48 lots. Options volume increased to 11,706 lots (7,439 calls and 4,267 puts) from 4,681 lots (3,110 calls and 1,571 puts).

Mills priced a net 1,052 on-call lots in May-July combined last week and producers added a net 166 lots, the Commodity Futures Trading Commission’s weekly call figures showed after the close Thursday.

The unpriced positions declined to 79,044 lots on the mill side and edged up to 5,434 lots on the producer side. The net call difference declined 1,218 lots to 73,610, 35.5% of the old-crop open interest. And the lopsided unfixed old-crop imbalance eased only a bit to 14.5 to 1.

In the May contract, mills reduced their unpriced positions 3,147 lots to 36,216, while producers cut theirs 433 lots to 2,677. Across the board, the unfixed positions rose 3,057 lots to 118,488 for mills and 2,864 lots to 29,625 for producers.

On the international scene, China said the target price cotton subsidy now will be set every three years instead of annually and put the 2017-2019 level at 18,600 yuan ($2,695) per metric ton, unchanged from 2016.

The target price can be adjusted if there are major changes in the cotton market, Reuters reported, quoting a statement by the National Development and Reform Commission. The move is aimed at curbing big changes in output from year to year, the government said.

Under the new plan, the NDRC also has set a limit for how much cotton grown in Xinjiang can benefit from future subsidies. Over the next three years, subsidies for Xinjiang cotton will apply only to output that is less than 85% of the average national annual production for 2012-2014.

China gives higher subsidies to Xinjiang growers than in other regions, encouraging farmers elsewhere to plant other crops. Xinjiang now produces at least 67% of China’s cotton.

Futures open interest increased 2,278 lots Thursday to 279,772. May’s OI gained 263 lots to 159,872, July’s 121 lots to 48,600 and December’s 1,686 lots to 63,325.

Certificated stocks grew 632 lots on a one-lot decertification and 633 newly certified bales. Awaiting review were 273 bales at Memphis.

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