DTN Cotton Close: Finishes on Moderate Gains

Follow-through action on bounce from support area contributed to early rally. December got within 12 ticks of its contract high and settled on a new contract high close. Traders awaited U.S. weekly export sales-shipments report.

Cotton futures traded within ranges established by early morning and finished with moderate gains Wednesday as traders awaited the U.S. weekly export sales-shipments report.

July settled up 59 points to 84.35 cents, in the lower half of its 176-point range from down 13 points at 83.63 to up 163 points at 85.39 cents. It followed through on a bounce the prior day from a chart support area and 40-day moving average, underpinned by mill on-call fixations, and may have received some help from strong gains in China’s cotton markets.

December settled up 58 points to 80.69 cents, in the middle of its 140-point range from 79.98 to 81.38 cents. It got within 12 points of its contract high and settled on a new contract high close.

Volume increased to an estimated 34,700 lots from 26,750 lots the previous session when spreads accounted for 10,930 lots or 41%, EFP 423 lots and EFS 128 lots. Options volume rose to 12,764 lots (10,095 calls and 2,669 puts) from 8,350 lots (4,124 calls and 4,226 puts).

Some expectations for net U.S. upland export sales for shipment this season range from 125,000 to 200,000 running bales for the week ended May 10, compared with 193,100 RB the previous week. The USDA report will be released at 7:30 a.m. CST on Thursday.

Prices during the latest reporting week ranged from 83.83 cents to the contract high of 88.08 cents, basis July. There has been talk of quiet business and increased cancellations at the higher prices. Net upland sales the last four weeks have averaged 246,300 RB for shipment this season and 254,200 RB for next season.

Upland shipments the prior week quickened to a nine-week high and the second highest of the marketing year at 510,500 RB. Shipments of upland the last four reporting weeks have averaged 431,900 RB, above the pace needed to achieve USDA’s upwardly revised 2017-18 estimate.

The USDA’s latest supply-demand forecasts projected 2018-19 all-cotton exports at 82% of total U.S. cotton use. Market offtake (mill use plus exports) in 2018-19 is forecast to remain near 18.9 million bales as both domestic mill consumption and exports are each forecast to reach a similar level to the previous year.

In 2017-18, the largest U.S. cotton supply in a decade and a wide range of qualities boosted export demand to the second highest on record. And with global cotton mill use forecast to reach a record high, strong demand for U.S. cotton is expected to continue into 2018-19.

However, with world trade projected to rise further and export competition increasing — especially from Brazil and Australia — the U.S. share is expected to decline to 38% from 39.4% this season. Of concern to some traders is the surge in the U.S. dollar index this week to a six-month high, upping the cost of U.S. cotton to foreign users.

Domestic mill use for 2018-19 is forecast at 3.4 million bales, up 50,000 bales from this season, supported by export demand for U.S. cotton textile products.

Production is projected to exceed demand, resulting in ending stocks increasing nearly 11% from the current season to 5.2 million bales on July 31, 2019, the highest in 10 years. The stocks-to-use ratio of 27.5% would be the highest in three years.

Certified stocks grew 1,047 bales to 79,220 Wednesday, the daily ICE report showed. Open interest dipped 57 lots to 282,944, with July’s down 2,451 lots to 130,975 and December’s up 1,732 lots to 118,815.

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