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Weekly Cotton Comments                 05/18 05:27

   Cotton Puts Up New-Crop Contract Highs

   Export sales-shipments and crop concerns sparked rally. Futures in China 
rose daily limit. U.S. export bookings stand 12% over the USDA 2017-18 estimate 
and now 28% of the 2018-19 projection. Shipments moved ahead of year-ago 
exports for the first time. U.S. crop 36% planted.

By Duane Howell
DTN Cotton Correspondent

   Constructive U.S. weekly export sales and shipments helped to extend an 
old-crop cotton futures rally and drive new-crop prices to contract highs amid 
crop concerns here and abroad. 

   Spot July gained 47 points for the marketing week ended Thursday to close at 
85.03 cents, underpinned with mill fixations. The last of the old-crop 
contracts bounced off the week's low at 83.36 cents on Tuesday, holding just 
above the 50-day moving average (83.31) to finish the day with a small gain. It 
added to the rally the next two days, hitting a five-session high at 85.69 
cents. 

   December advanced 134 points to settle at 81.45 cents, a new contract high 
close after climbing to a new contract high of 81.80 cents, topping the old 
high of 81.50 on May 7. Open interest coming into Thursday's session had 
declined 10,306 lots from a week ago to 130,753 and December's had gained 6,124 
lots to 114,891. 

   Scattered showers and thunderstorms left the bulk of the Texas High Plains, 
the nation's largest cotton patch, still needing planting moisture and crop 
damage from rainstorms in Xinjiang, China's largest cotton-producing region, 
contributed to the new-crop futures gains. The Xinjiang news sent the September 
and January cotton contracts up their daily limits on the Zhengzhou Commodity 
Exchange. 

   The United States is the world's third largest cotton producer and largest 
cotton exporter, while China is the second largest producer and largest 
consumer. Combined with India, the three largest producers are expected to 
account for 62% of world cotton output in 2018-19, according to USDA estimates, 
compared with 63% in 2017-18. 

   China's crop is forecast by USDA at 27 million bales, down about 2% from the 
prior year but still one of the largest in recent years. Planted area is 
expected lower at 8.3 million acres as government policies have reduced support 
for cotton farmers while production costs have risen.

   However, with the cotton area concentrated in high-yielding Xinjiang, the 
national yield is forecast only slightly below last year's record 1,571 pounds 
per acre. 

   Back on the demand front, net U.S. all-cotton weekly export sales for this 
season and next of 384,700 running bales, though down from 425,300 RB the 
previous week, were considered healthy for a period in which both old-crop and 
new-crop futures posted new contract highs. July made a key day reversal down 
after hitting its contract high at 88.08 cents on May 7.

   Sales of 155,400 RB for this season, down from 196,400 RB, boosted 2017-18 
commitments to 16.782 million RB, widening the lead over year-ago bookings 
28,000 RB to 2.523 million RB or 18%.

   Commitments, bolstered by ongoing demand for lower qualities from the 
Southwest, have risen 12% above the USDA export forecast. Some unshipped 
old-crop sales will help to bridge the gap prior to volume movement of new-crop 
supplies. A year ago, commitments were 98% of final 2016-17 exports. 

   All-cotton shipments dipped to 434,400 RB from 520,800 RB but remained well 
above the pace needed to achieve the USDA forecast. Shipments for the season 
reached 11.093 million RB, edging for the first time ahead of exports a year 
ago when shipments were 11.075 million RB. 

   Exports were 74% of the USDA estimate, compared with 76% of final shipments 
at the corresponding point last season. Shipments averaging roughly 336,900 RB 
per week for the 11-plus weeks remaining in the season would achieve the USDA 
forecast. 

   New-crop sales of 229,300 RB lifted 2018-19 commitments to 4.142 million RB, 
1.467 million RB or 55% more than forward bookings a year ago. Commitments for 
2018-19 stand at 28% of the USDA forecast, compared with year-ago forward sales 
at 18% of the current 2017-18 estimate. 

   The USDA's initial 2018-19 supply-demand forecasts this month projected 
exports at 82% of total U.S. cotton use. Market offtake (mill use plus exports) 
in 2018-19 is forecast to remain near 18.9 million bales as both domestic mill 
consumption and exports are each expected to reach a similar level to the 
previous year. 

   In 2017-18, the largest U.S. cotton supply in a decade and a wide range of 
qualities boosted export demand to the second highest on record. And with 
global cotton mill use forecast to rise to a record high, strong demand for 
U.S. cotton is expected to continue into 2018-19. 

   However, with world trade projected to expand further and export competition 
increasing -- especially from Brazil and Australia -- the U.S. share is 
expected to decline to 38% from 39.4% this season. Of concern to some traders 
is the U.S. dollar index surge to a six-month high early in the week, raising 
the cost of U.S. cotton to foreign users. 

   Domestic mill use for 2018-19 at a projected 3.4 million bales, up 50,000 
bales estimated for this season, is also supported by export demand for U.S. 
cotton textile products. 

   Production is projected to exceed demand, resulting in ending stocks 
increasing nearly 11% from the current season to 5.2 million bales on July 31, 
2019, the highest in 10 years. The stocks-to-use ratio of 27.5% would be the 
highest in three years. 

   On the crop scene, U.S. cotton planting advanced at 16 percentage points to 
36% completed during the week ended last Sunday, up five points from last year 
and the five-year average, according to the USDA progress report. 

   The Texas crop was 28% planted, up from 19% a week earlier and 23% last year 
and the five-year average. Two percent was squaring, behind 6%a year ago and 3% 
on average. 

   Producers in Georgia planted cotton at a fast 21-point clip to 41% 
completed, 10 points ahead of average. Progress lagged the averages only in 
Arizona and South Carolina, was even in Kansas and Louisiana and was ahead in 
the other 11 reporting cotton states. 


(KR)

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