DTN Cotton Open: Surges to New Highs on Heavy Volume

©Debra L Ferguson Stock Images

Potential U.S-China trade war declared “on hold.” Severe thunderstorms dropped “giant hail” and heavy rains on parts of the Texas Plains. Trend-following funds cut their net longs 6,921 lots after five straight weeks of increases. Cash online sales rose to 11,408 bales on The Seam on prices averaging 65.35 cents per pound.

Cotton futures surged to strong gains overnight and hit new contract highs in heavy early dealings Monday on the heels positive weekend news on the U.S.-China trade spat and bullish weekly reversals in both July and December.

July ticked up 183 points to 88.38 cents, in the upper quarter of its 163-point range from 87.10 to 88.73 cents on a contract volume of 10,123 lots. December traded up 203 points to 84.46 cents, also in the upper quarter of its 219-point range from 82.70 to 84.89 cents on a turnover of 9,729 points.

Support stemmed partly from news that a potential U.S.-China trade war was declared “on hold” after the world’s two largest economies agreed to drop their tariff threats while they work on a wider trade agreement. Treasury Secretary Steven Mnuchin said the United States expects a big increase of between 35% and 40% in agricultural exports to China this year alone and a doubling of energy purchases over the next to five years.

On the weather front, severe thunderstorms dropped “giant hail” and heavy rains on parts of the Texas Plains on Saturday. Beneficial rainfall fell over a “good chunk” of the region in the midst of flexing drought. The heaviest rainfall of 1 to 2-plus inches fell southeast of Lubbock into the Rolling Plains. Still, some producers got no rain or just enough to ruin planting seed and not establish stands. Chances for additional rain in the Lubbock area range from 40% to 20% daily through Wednesday.

Meanwhile, trend-following funds sold 6,921 lots in ICE cotton futures-options combined to reduce their net longs to 96,773 lots during the week ended Tuesday, according to traders-commitments data reported by the Commodity Futures Trading Commission after the close Friday.

They liquidated 5,818 longs and added 1,103 shorts to cut their net longs for the first time in six weeks. Index funds increased their net longs 485 lots to 85,978, while traders with non-reportable positions shaved theirs 1,147 lots to 7,464.

Commercials bought a net 7,583 lots, covering 7,704 lots and liquidating 121 longs to trim their net longs to 189,314 lots. Open interest fell 5,275 lots to 350,885 during the reporting week. Prices during the reporting week ranged from 86.17 to 83.36 cents and ended with a 162-point loss, basis July, and then rose 279 points the next three sessions amid suspected renewed fund buying.

In ICE cotton futures Friday, July extended Tuesday’s rally off the 50-day moving average to close on a triple-digit gain, ending on the plus side for the fourth session in a row and the fifth time in the last six.

The inverted July-December straddle traded between 352 and 461 points and widened 54 points to settle at a 412-point July premium on a volume of 6,197 lots. December-March traded between flat and a 36-point December premium and widened 10 points to close on an inverted 19 points on 2,523 lots.

Cash online sales rose to 11,408 bales on The Seam on prices averaging 65.35 cents per pound on The Seam. Premiums over loan rates averaged 20.40 cents, up 68 points. Offerings declined to 52,153 bales.

The Cotlook A Index of world values gained 75 points to 93.25 cents, widening the premium over the prior-day July futures settlement seven points to 8.22 cents.

In outside markets, Dow Jones Industrial Average futures jumped 215 points and S&P futures 15.75 points on the U.S.-China trade news. U.S. dollar index futures gained 0.150 to 93.650 against a basket of major currencies.

West Texas Intermediate crude oil gained 9 cents to 71.37 and Brent crude fell 18 cents to $78.36. June gold fell $5.10 to $1,286.20. July corn was up 0.87%, July soybeans up $1.87 and July Kansas City wheat up 0.42%.

Asian stocks closed mostly higher, up 0.31% in Japan’s Nikkei 225, 0.6% in Hong Kong’s Hang Seng, 0.2% in South Korea’s Kospi and 0.66% in China’s Shanghai Composite. India’s dropped 0.67%. European shares traded higher, up 0.56% in Britain’s FTSE 100 after hitting an al-time high at up 0.8% and France’s CAC 40 up 0.46%. Markets in Germany and some other countries were closed for a holiday.

China’s Zhengzhou cotton futures ended limit up and prices ended mixed on the China National Cotton Exchange. India’s MCX cotton futures continued to rise and crop prices were higher as arrivals again fell.

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