PCG EMAIL SERVICES: LUBBOCKONLINE.COM - Howell: Explosive cotton rally soars above prior four monthly highs
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LUBBOCKONLINE.COM - Howell: Explosive cotton rally soars above prior four monthly highs
Posted January 6, 2017 05:09 pm
By Duane Howell
For A-J Media
Exploding above the prior four monthly highs, cotton futures finished sharply ahead last week even after a steep reversal off the peak snapped a string of five higher closes in a row.
Spot March gained 328 points or 4.7 percent for the marketing week ended Thursday to settle at 73.78 cents. March surged from the low of 70.43 cents on Dec. 30 to the high of 75.37 cents on Thursday, its highest price since Aug. 9, and closed in the upper third of the 494-point range.
Volume mushroomed to 54,800 lots at midweek when a burst through resistance at 72.43 triggered a series of buy stops. Open interest coming into Thursday had jumped 13,127 lots from a week earlier to 255,395.
March swept through a 75 percent retracement (74.96) of the skid from the Aug. 5 high at 78 cents to the Sept. 1 low at 65.85, but it couldn't hold above that despite the U.S. dollar index falling to the lowest since Dec. 14 after posting a new 14-year high on Tuesday.
A big mill unpriced on-call position, lingering vibes from strong U.S. weekly export sales and technically oriented buying all contributed at midweek to the strongest one-day point gain - 230 - for March of the marketing year. Export commitments of 8.61 million running bales as of Dec. 22 were 66 percent ahead of a year ago.
Cash online grower sales leaped to a crop year high of 197,123 bales from 32,823 bales on The Seam. Prices advanced 324 points to average 68.73 cents, reflecting gains to 14.47 cents from 12.39 cents in premiums over loan repayment rates. Daily average prices ranged from 66.89 to 69.60 cents.
Traders took note of an International Cotton Advisory Committee report that said cotton prices may fall in the second half of the 2016-17 marketing year owing to increased supplies.
The ICAC secretariat said in a monthly report that the season-average world price as measured by the Cotlook A Index will range between 66 and 83 cents per pound, with the midpoint (74.50 cents) up about four cents from last season.
The season started with a large shrinkage in stocks, particularly from countries in the Southern Hemisphere, which saw 2015-16 ending stocks fall by 21 percent to 1.6 million metric tons (7.3 million 480-pound bales), lowest since 2009-10, ICAC said.
Supply tightness carried through the first few months of 2016-17 as the bulk of the crop still was being harvested, keeping prices firm. However, world cotton production is projected to rise by 8 percent to 22.77 million tons (104.6 million bales), which may pressure cotton prices in the latter half of the season, ICAC said.
World stocks may fall by 7 percent to 17.95 million tons (82.4 million bales), but stocks outside China are expected to grow by 6 percent to 8.7 million tons (nearly 40 million bales).
Global cotton consumption is likely to remain stable at 24.13 million tons (110.8 million bales), ICAC said. While prices for polyester, the main competing fiber, have risen in recent weeks, they remain well below international cotton prices. It's unlikely cotton mill use will expand this season unless polyester prices continue to rise, ICAC added.
The ICAC estimates indicated the world crop shortfall is expected to narrow to 6.2 million bales from 14.1 million bales last season, suggesting a two-year stocks drawdown of some 20.3 million bales.
On the U.S. crop scene, upland classing slowed to 420,289 running bales during the week ended Dec. 29 to boost the total for the season to 12.879 million RB, according to the latest USDA weekly figures. That was up 23 percent from 12.489 RB graded through Dec. 31 last season.
The USDA had classed 83 percent of the estimated crop, compared with 87 percent of the final 2015 crop a year ago. Cotton tenderable on futures contracts totaled 67.3 percent for the week and 71.4 percent for the year, up from 45.6 percent and 56 percent, respectively, last season.
Looking ahead, a survey by Cotton Grower magazine indicated producers intend to plant 10.887 million acres of cotton in 2017, up 7.3 percent from the USDA estimate of 10.145 million acres in 2016. The increase was linked to outstanding 2016 cotton yields in most regions and flagging competitive crop prices.
Meanwhile, revised Commodity Futures Trading Commission on-call data showed mills raised their total unpriced position by 641 lots to 108,950 during the week ended Dec. 23. The original report had shown a huge jump of 28,941 lots. The CFTC said the revision was because of changes in data submitted to the commission.
In 2016-17 marketing year months, the revised data showed mills added 1,286 lots to raise their unfixed position to 86,724 lots, while producers priced 519 lots to shave theirs to 8,839 lots. The net difference increased 1,805 lots to 77,885 - 34.7 percent of the open interest. The unpriced mill position outweighed that of producers by 9.8:1.
Separately, slight changes reported by the CFTC in traders-commitments data showed trend-following funds nudged their net longs up a net 236 lots to 94,247 during the week ended Dec. 27.
They covered 708 shorts and liquidated 472 longs. Index funds shaved their net longs 533 lots to 63,478, while non-reportable traders increased theirs by 331 lots to 7,297. Commercials inched their net shorts up 35 lots to 165,022, liquidating 948 longs and covering 913 shorts.
On the international scene, upbeat Chinese factory data helped give global equities an early-week boost, with the Caixin manufacturing purchasing managers' index advancing in December at its fastest rate in three years. The index was 51.9, up from forecasts of 50.7 and the prior month's reading of 50.9.
In data released a day earlier, China's official manufacturing sector index dipped to 51.4 in December from 51.7 the prior month, indicating the world's second largest economy and largest cotton consumer continued to expand, though at a slower rate.
Duane Howell is retired farm editor of The Avalanche-Journal. His email address is duane.howell at sbcglobal.net.
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