PCG EMAIL SERVICES: LUBBOCKONLINE.COM - Howell: Bullish supply-demand estimates spur big cotton rally

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Mon Aug 17 17:57:34 CDT 2015

LUBBOCKONLINE.COM - Howell: Bullish supply-demand estimates spur big cotton rally


Posted: August 16, 2015 - 12:11am
By Duane Howell

Bullish USDA supply-demand estimates spurred a surge to a five-week high on heavy dealings in cotton futures last week.

Benchmark December staged a big outside-range reversal to the upside on USDA's supply-demand report on Wednesday, touching the 300-point daily limit and closing up 287 points to 64.69 cents. This marked a 50 percent correction (64.66) in a single session of the decline from the July high at 68.11 to a new contract low earlier in the day at 61.20 cents.

December extended the rally amid suspected short-covering and new fund buying to finish with a 353-point gain for the week ended Thursday to 65.79 cents, its highest close since July 14. It finished back above its rising 50-day moving average after hitting the low amid weak demand news and concerns about China's economy.

Volume jumped to a whopping 62,768 lots on Wednesday, most since a turnover of 67,165 lots on April 10, and totaled 53,902 lots on Thursday.

Cash grower-to-business sales rose to 4,214 bales on The Seam, largest since the week ended July 2. Daily average prices ranged from 53.44 to 63.92 cents, reflecting premiums of 10.18 to 12.10 cents over loan repayment rates.

U.S. crop prospects fell 1.42 million bales or 10 percent from the July forecast to 13.082 million, below expectations of 14.78 million bales reported in a survey of cotton analysts by The Wall Street Journal. The USDA estimate is down 20 percent from last year's 16.319 million bales.

The season's first USDA production field survey showed a 100,000-acre cut from the prior estimate to 8.9 million in plantings, much higher-than-expected abandonment of 1.01 million acres, or 11.3 percent, to 7.89 million for harvest and a yield reduction to 795 pounds from 819 pounds. Yields last year averaged 838 pounds and the five-year average is 829 pounds.

Beginning stocks dropped 500,000 bales to 3.7 million, reflecting a reduction of that size in 2014-15 ending stocks on a 200,000-bale increase to 11.2 million in last season's exports plus a preliminary reduction based on stocks reported in public warehouses.

Export prospects for 2015-16 were cut 800,000 bales to 10 million, while domestic mill consumption slipped a slight 50,000 bales to 3.7 million. Ending stocks fell 1.1 million bales to 3.1 million, 22.6 percent of total use and down from 25.1 percent now estimated for 2014-15.

The projected marketing year average farm price range rose to 58 to 72 cents for a midpoint of 65 cents, up from 62 cents foreseen last month and 60.50 cents in 2014-15.

Production in Texas is estimated at 5.3 million bales, down 14 percent from last year, but the state's High Plains output is forecast up 13 percent to 3.67 million bales from 3.261 million.

The High Plains crop, projected about the midpoint of private estimates reported last week of 3.5 million to 3.75 million bales, would account for 69 percent of the Texas production. Area abandonment is forecast at 580,000 acres, or at 17.3 percent, higher than estimated losses thus far, and yields at 589 pounds, down from 636 pounds last year.

Globally, USDA cut production 2.47 million bales to 108.99 million, raised consumption 210,000 bales to 114.65 million and cut ending stocks 2.95 million bales to 105.19 million. World cotton trade prospects rose to 34.5 million bales from 34.1 million.

Production declined a million bales in China to 26 million and 500,000 bales in India to 29 million. Crops also dipped in Uzbekistan and but rose in Brazil, Australia and Pakistan.

World consumption and trade reflected multiple, mostly offsetting changes, USDA said, the largest of which incorporated historical and current increases to imports and mill use for Bangladesh.

Consumption in China, the world's largest cotton consumer, fell 500,000 bales to 34 million, even with last season, and ending stocks dropped 500,000 bales to 64.58 million, 61 percent of the world carryout.

Ending stocks outside China are forecast to fall 2.45 million bales from the July projection to 40.61 million, down from 43.83 million estimated for 2014-15.

On the demand front, U.S. export sales for the 2015-16 marketing year, which began Aug. 1, of 99,700 running bales through Aug. 6 plus carryover sales from 2014-15 brought commitments to 2.598 million bales. Carryover sales totaled 489,900 bales.

Commitments amounted to 27 percent of the USDA projection and were 2.015 million bales, or 44 percent, behind 2014-15 bookings at the corresponding point last season. A year ago, commitments were 42 percent of the current estimate.

Shipments for the season of 105,900 bales indicated exports averaging roughly 188,100 bales a week would achieve the estimate. On the sales side, a weekly average of approximately 139,300 bales would match the export projection.

On the U.S. crop scene, conditions showed little overall change for the week ended Aug. 9, with good to excellent down a percentage point to 56 percent, fair up two points to 35 percent and poor to very poor down a point to 9 percent, USDA reported.

Year-ago ratings were 52 percent good-excellent, 34 percent fair and 14 percent poor-very poor. The DTN cotton condition index edged up a point on the week to 148, up from 132 last year.

Squaring advanced four points to 96 percent, ahead of last year for the first time by a point but a point behind the five-year average, while boll-setting expanded 11 points to 68 percent, widening the margin behind last year and average to 13 and 11 points, respectively.

Meanwhile, the long-awaited launch of trading in a new world cotton futures contract is set for Nov. 2, pending regulatory approval, the Intercontinental Exchange announced.

The world contract will trade alongside the U.S. cotton contract, which allows delivery of only domestic cotton. The new contract will price delivery of cotton from nine countries that account for 75 percent of world cotton exports and will have 12 delivery points in the United States, Australia, Taiwan and Malaysia.

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