PCG EMAIL SERVICES: LUBBOCKONLINE.COM - Howell: Cotton jumps to new rally high, finds overhead resistance
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Sun Jan 5 11:49:43 CST 2014
LUBBOCKONLINE.COM - Howell: Cotton jumps to new rally high, finds overhead resistance
Sunday, Jan. 5, 2014
By Duane Howell
For the Avalanche-Journal
Technically oriented buying and a new round of stronger-than-expected U.S. weekly export sales amid ongoing perceptions of tightening nearby supplies have contributed to lifting cotton futures to new 11-week highs.
Spot March finished the week ended Thursday with a 115-point gain to 84.04 cents. However, it closed in the lower half of its 209-point range from 85.29 — its highest intraday price since Oct. 18 — to 83.50 cents.
The May contract advanced 140 points to 84.02 cents, July gained 136 points to 83.98 cents and December — bidding for cotton acreage — added 144 points to 78.94 cents.
March climbed above 85 cents four consecutive sessions but settled below that each time amid suspected fund profit-taking, year-end position adjustments and hedge selling.
The rally high was smack on the 61.8 percent retracement resistance — 85.28 — of the 1,396-point move from the August high of 90.61 cents to the November low of 76.65 cents. Yet March has closed above its 200-day moving average four sessions in a row.
Spot futures posted the cotton market’s first annual gain in three years, rising 950 points, or 12.7 percent, to end 2013 at 84.64 cents.
In cash trading, grower-to-business sales quickened to 57,841 bales on The Seam from 25,034 bales the previous week. Prices eased 10 points to an average of 77.15 cents, reflecting gains of 67 points to 24.14 cents in premiums over loan repayment rates. Daily average prices ranged from 77.51 to 76.59 cents.
On Dec. 31, 2012, growers sold 3,247 bales on The Seam for an average of 67.64 cents a pound and premiums of 15.01 cents. World values as measured by the Cotlook A Index rose 675 points or 8.1 percent in 2013 to 89.70 cents.
Net U.S. all-cotton export sales of 230,200 running bales in the week ended Dec. 19 for shipment this season brought 2013-14 commitments to 7.296 million bales, 72 percent of the USDA estimate. Sharply slower sales were expected for the next week, which was Christmas week.
China confirmed in a report by the official Xinhua news agency just ahead of the USDA sales report that the world’s largest cotton consumer and importer plans to end its system of stockpiling cotton and soybeans in favor of direct subsidies to growers.
This was widely regarded as longer-term bearish, but futures still surged to what was then a new rally high of 85.20 cents, basis March. The announcement offered no information on when the new program would be implemented or on other details. Meantime, stockpile buying continues.
It would seem Beijing would need to provide details of its plans soon to encourage producers to remain in cotton or at least prevent a sizable defection to other crops, Sharon Johnson, senior cotton specialist with KCG Futures, commented.
Johnson indicated in a report she believes China intends to move more cotton production to Xinjiang, the top cotton province, while increasing production of grains and other foodstuffs in the eastern provinces in an effort to become more self-sufficient.
The jump in cotton production in some key exporting countries suggests that imports over time could fill any eventual shortfalls, she said. In the short term, she added, current production and the record level of strategic stocks could meet most of the domestic mill needs.
Quality considerations could result in higher imports in some years, such as presently, as well as support the ample investment Beijing has in the reserve cotton, she said. Quality of the reserves is questionable.
The decrease in China’s cotton mill use from a record 51 million bales in 2007 to 36 million bales estimated for this season is considered irrevocably lost, with some textile companies having moved plants to other countries with lower labor costs.
While China may change how it maintains strategic stocks this year and beyond, Beijing is unlikely to “let those stocks be drawn down to nearly nothing as occurred the summer of 2010,” Johnson asserted.
“I suspect the eventual decline in Chinese strategic reserves will not be as great as some expect, which by itself is friendly going forward,” she said.
Separately, China announced that quality requirements for stockpile procurement will be reduced in three provinces where bad weather damaged the crop and constrained purchase volumes.
The news fanned fears of a shortage of deliverable cotton and powered a steep rally on big volume in China’s Zhengzhou cotton futures.
Purchases from the three provinces — Hubei, Hunan and Jiangzi — cannot exceed the season’s total output, estimated at a combined 838,000 metric tons or 3.85 million 480-pound bales.
On the U.S. crop scene, upland classing slowed to 459,909 running bales during the week ended Dec. 26 from 792,781 bales the previous week, boosting the total for the season to 10.394 million bales.
This was about 28 percent behind 14.354 million bales classed a year ago. Classing reached about 86 percent of USDA’s upland production forecast in December.
Tenderable cotton dipped to 59.3 percent for the week and 62.8 percent for the season. A year ago, 58.4 percent of the season’s classing met tenderable requirements and 90 percent had been graded.
Meanwhile, trend-following funds bought 4,215 lots in futures-options combined during the week ended Dec. 24 to boost their net long position to 28,274 lots, according to government data
The report was for a week in which the market traded mostly sideways. Index funds bought 3,134 lots to raise their net longs to 67,066 lots, while traders with non-reportable positions bought a net 402 lots to trim their net short position to 354 lots.
Commercials sold 7,752 lots, adding 7,532 shorts and liquidating 220 longs to lift their net shorts to 94,987 lots. In futures only, non-commercials hiked their net longs 1.3 percentage points to 21.3 percent of the rising open interest.
DUANE HOWELL is retired farm editor of the Avalanche-Journal. He can be reached at duane.howell at sbcglobal.net.
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