DTN Cotton Open: Rebounds from Plunge to Gain 2.03%

    Photo: Nick McMichen

    Exports hit 97% of estimate. Crop improved; heavy damage reported in Texas lower valley. Some Plains producers have shifted water from corn to cotton. Upland 2019 crop under loan dipped to 1.315 million RB. Hedge funds sold 904 lots; trade shorts largest since Feb. 18. Mills priced 396 lots on-call. India cut crop estimate; plans to boost 2020-21 exports.

    Cotton futures rebounded off the lowest intraday print last Friday since June 26 to finish the marketing week ended Thursday on the highest close in the December delivery since July 13.

    December gained 126 points or 2.03% to close at 63.18 cents, just off the high of its expanded 370-point range from 59.51 last Friday to 63.21 cents on Thursday. It settled near short-term resistance at the July 22 high of 63.46, finishing four consecutive days back above its rising 50-day moving average after ending below it on a one-day stand last Friday.

    The December-March spread narrowed eight ticks to close at 63 points carry. Spreads accounted for 30% to 32% of the daily volumes coming into Thursday. December 2021 gained 102 points to close at 63.19 cents.

    Support may have stemmed partly from nervousness about the eventual path of Tropical Storm Isaias, expected to become a hurricane today on the way to Florida’s east coast, following heavy crop damage last weekend in the Texas Lower Rio Grande Valley. Buying increased on the move through 62 cents amid continued U.S. dollar weakness.

    Daily volumes averaged 20,171 lots, up from a mere 12,495 lots per session the previous week. Open interest declined 3,933 lots to 173,982, with December’s down 6,707 lots to 114,228 and March’s up 2,531 lots to 30,633. Certified stocks dipped 262 bales to 7,545.

    Cash online sales jumped to 23,753 bales from 1,894 bales, swelled by 13,513 bales from the Southeast changing hands on the grower-to-business exchange on Wednesday. Prices leaped to an average of 58.89 cents per pound from 47.82 cents, with premiums over loan rates surging to 8.86 cents from 2.63 cents. The turnover included 21,465 G2B bales and 2,288 bales on the business-to-business platform.

    Competitive price relationships saw the average of the five lowest-priced world growths for the Far East falling 133 points to 64.96 cents and the lowest-priced U.S. growth losing 150 points to 69.60 cents. The U.S. premium thus narrowed 17 points to 4.64 cents. This was the first narrowing in five weeks — during which the premium widened from 1.6 cents.

    The adjusted world price for the marketing week beginning today fell to 47.71 cents, resulting in the loan deficiency payment rising to 4.29 cents. The Aug. 6 AWP release will reflect a new costs-to-market adjustment of 16.95 cents per pound, up from 15.20 cents, USDA’s Farm Service Agency has announced.

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    Net all-cotton export sales for this season and next rose to a four-week high at a combined 137,800 running bales during the week ended July 23, up from only 9,600 RB the previous week but down from 386,400 RB for the corresponding week last year.

    Upland net sales of 118,700 RB for 2019-20, largest old-crop sales since the week ended June 4, reflected gross sales of 137,300 and cancellations of 18,600. Sales went to 10 countries, with 82% going to Vietnam and China.

    Commitments for 2019-20 — outstanding sales of 3.477 million RB plus shipments — rose to 17.728 million RB, 120% of the export estimate and up 1.46 million RB or 9% from year-ago bookings. With this marketing year ending July 31, a significant volume of unshipped commitments will be rolled into the 2020-21.

    Net new-crop sales of 10,000 RB, down from 11,300 the week before and 373,600 in forward sales a year ago, nudged 2020-21 commitments up to 3.585 million RB, 1.372 million below a year ago. Commitments were about 25% of the USDA export forecast, compared with 34% of the current 2019-20 export projection last year.

    All-cotton shipments quickened to 328,600 RB from 273,600 the prior week and 297,900 a year ago. Upland shipments of 320,800 RB, up 18% from the prior week and 8% from the four-week average, went to 20 countries, headed by China, Vietnam, Turkey, Bangladesh and Pakistan.

    Shipments for the season stood at 14.251 million RB, up 722,000 RB or about 5% from a year ago and 97% of the estimate. Exports are within roughly 493,000 RB of making the estimate.

    Improvement in U.S. crop conditions appeared to have offset concerns about damage to cotton in South Texas from Hurricane Hanna, which made landfall near Corpus Christi on Saturday as a Category 1 storm. Damage reports were just coming in from the Coastal Bend and the Lower Rio Grande Valley. Some growers in the lower valley lost all their cotton crops. A promising Coastal Bend crop sustained smaller yield and quality losses.

    Cotton rated good to excellent across the belt improved two percentage points to 49% and poor to very poor fell six points to 16% last week, down 12 points and up five points, respectively, from a year ago.

    The focus was on top-producing Texas, where conditions improved a second week with good-excellent up three points to 31% and poor-very poor declined 11 points to 23%. The statewide crop index ticked up five points to 61, compared with 76% a year ago.

    Squaring cotton advanced 15 points to 83%, even with last year and the five-year average, and boll setting moved up 13 points to 34%, up three points and two points, respectively.

    Rainfall during the weekend ranged mostly from around 6 to 12 inches in four counties nearest the Gulf of Mexico coast south of Corpus Christi, with 14-plus inches and strong winds reported along the coast and the lower valley.

    Harvesting had begun to expand in the Rio Grande Valley ahead of the storm. Modules were moved from fields to gin yards and ginning had begun.

    Defoliants were applied in the Coastal Bend, where harvesting had been expected to begin by the weekend and ginning to get underway this week. The earliest planted fields had reached cutout in the Blacklands. Boll loads were encouraging.

    An 11-day record streak of triple-digit temperatures ended early in the reporting period on the High Plains. Thunderstorms brought an inch to more than 2 inches of beneficial rainfall to some locations. Coverage remained spotty, but irrigation wells got to rest in areas with significant rainfall. Much of the region remained dry.

    Producers in some northern High Plains areas had given up watering corn and concentrated irrigation on cotton. Overall cotton abandonment thus far is estimated at 40% to 50% in its 42-county High Plains area by the Lubbock-based Plains Cotton Growers, Inc.

    Conditions also improved in most other Cotton Belt states, with declines noted only Arizona, Louisiana, Mississippi and Virginia. In Georgia, the second largest producer, good-excellent edged up a point to 76%, while poor-very poor increased three points to 7%.

    Meanwhile, repayments pared outstanding 2019-crop upland loans by 14,161 RB to 1.315 million during the week ended July 20, according to USDA. The bulk of the cotton remaining under loan is believed committed. Loans outstanding included 453,045 RB of Form A issued to individual growers and 862,105 RB of Form G issued to marketing cooperatives or loan servicing agents.

    Upland forfeitures for the 2018 crop were 250 RB for the week and 72,639 for the season. This left no loans outstanding from that crop.

    Money-flow data showed trend-following funds sold a net 904 lots — their first time on the sell side in five weeks — in cotton futures-options combined during the week ended July 21. Their net longs dipped to 21,318 lots on the addition of 2,216 shorts and 1,312 longs.

    Index funds bought 2,041 lots to raise their net longs to 70,568, according to the latest supplemental traders-commitments data reported by the Commodity Futures Trading Commission, while non-reportable traders sold 98 lots to nudge theirs down to 3,016.

    Commercials sold 1,039 lots, liquidating 579 longs and adding 460 shorts to boost their net shorts to 94,931, largest since Feb. 18. Prices during the reporting week ranged between 61.60 and 63.28 cents, basis December. Combined open interest gained 3,447 lots to a delta-adjusted 213,887.

    Managed-money funds bought a net 556 lots, lifting their net longs to 30,373, disaggregated data showed. They added 2,220 longs and 1,664 shorts.

    Separately, CFTC on-call data showed mills priced a net 396 lots last week, trimming their unpriced sales to 89,357, 50.9% of the futures OI. Producers priced 546 lots to shave their unfixed position to 47,497. The net call difference increased 150 lots to 41,860, 23.8% of the OI.

    On the international scene, the Cotton Association of India reduced its latest 2019-20 production estimate by 1.7% from a month earlier to the equivalent of 26.21 million 480-pound bales, down from USDA’s forecast of 30.51 million.

    The crop news came as The Economic Times reported that the state-run CCI is working on plans to boost exports to Bangladesh and Vietnam, the world’s second and third largest cotton importers behind China.

    Vietnam, the largest importer of U.S. cotton this season on purchases of 4.036 million statistical bales, is projected by USDA to import a total of 7 million bales in 2020-21, up from 6.5 million in 2019-20. U.S. exports are forecast to fall to 15 million bales from 15.2 million in 2019-20; India’s to rise to 4.5 million bales from 3 million.

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