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Weekly Cotton Comments                 10/11 05:13

   Cotton Ends With Small Loss As Trade Teams Meet

   Trade talks went "very well." Supply-demand estimates showed only slight 
changes. Upland export sales for 2019-20 reached eight-week high. Hard freeze 
forecast on Texas High Plains. U.S. crop 25% harvested. New-crop loans 
outstanding rose to 188,329 RB. Growers have booked only 3% of expected crop. 
Hedge funds reduced net shorts 4.6%. Mills bought 1,391 lots on-call. China 
state reserves buying intentions eyed. 

By Duane Howell
DTN Cotton Correspondent

   Cotton futures finished with a small marketing week loss as traders digested 
USDA reports showing only slight changes in monthly supply-demand estimates and 
an eight-week high in current-crop U.S. upland export sales while awaiting the 
outcome of high-level U.S.-China trade talks. 

   December eased 18 points for the week ended Thursday to settle at 61.42 
cents, in the lower half of its tightened 168-point range from 60.79 cents on 
Tuesday to 62.47 cents on Thursday. The December-March spread narrowed 10 ticks 
to 66 points of carry, while December 2020 dipped 51 points to close at 64.12 
cents. 

   Volume slipped to an average of 21,673 lots per session from 26,410 lots the 
previous week. Open interest coming into Thursday edged down 273 lots to 
236,128, with December's down 5,655 lots to 132,471, March's up 4,322 lots to 
66,456 and December 2020's up 289 lots to 17,505. Cert stocks declined 613 
bales to 10,523. 

   Cash online sales slowed to 9,660 running bales on The Seam's 
grower-to-business and business-to-business exchanges from 14,698 RB. Prices 
rose to an average of 57.60 cents per pound from 54.91 cents, with daily 
averages ranging between 47.67 and 60.96 cents. Premiums over loan redemption 
rates averaged 4.05 cents, up from 103 points. 

   News after the cotton close that President Trump disclosed plans for a White 
House meeting today with Lieu He, China's vice premier and chief trade 
negotiator, spurred speculation that the two sides are moving closer to at 
least a partial trade deal. Trump said the trade talks "went very well" on 
Thursday after top U.S. and Chinese negotiators met for the first time since 
late July to try to ease the 15-month trade war. U.S. stock futures extended 
gains Thursday night. 

   On cotton's competitive front, the average of the five lowest-priced world 
growths for the Far East gained 54 points to 71.15 cents, figures reported by 
USDA showed, while the lowest-priced U.S. growth landed there gained 50 points 
to 70.20 cents.  The U.S. discount thus widened four ticks to 95 points. With 
the adjusted world price up to 53.90 cents, widening the margin over the base 
U.S. loan rate, the loan deficiency payment for the week ahead remains at zero. 
The spot December futures premium over the AWP narrowed 72 points to 7.52 
cents. 

   U.S. all-cotton production is forecast at 21.705 million bales, down 157,000 
bales from last month but up 18% from last year, USDA reported. Based on 
conditions as of Oct. 1, yields are expected to average 833 pounds per 
harvested acre, down six pounds from Sept. 1 and down 31 pounds from last year. 
Harvested acreage is forecast at 12.51 million, unchanged from the previous 
estimate but up 23% from last year. 

   Upland production is forecast at 20.981 million 480-pound bales, down 1% 
from the September production but up 19% from 2018, and the extra-long staple 
crop at 724,000 bales, up 1% and down 10%, respectively. The upland reduction 
reflects mainly a cut in Texas where the prospective crop fell 200,000 bales to 
7.8 million, up from 6.85 million bales last year.  Production prospects on the 
Texas High Plains dipped 130,000 bales to 4.52 million, up 585,700 bales from 
last year. 

   Regionally, upland production compared with a month ago is estimated down 
45,000 bales to 5.615 million in the Southeast, unchanged at 5.6 million in the 
Mid-South, down 140,000 bales to 8.96 million in the Southwest and up 21,000 
bales in the West to 806,000. If realized, yields of 1,128 pounds in Tennessee 
would be a record high.  Record yields also would be achieved in Florida.  U.S. 
upland yields of 820 pounds per acre would be 20 pounds below the five-year 
average. 

   With domestic use at 3 million bales and exports at 16.5 million bales both 
unchanged from a month ago, ending stocks fell 200,000 bales to 7 million, 
still the largest since 2007-08. The stocks would be 36% of total use, up from 
27% last year.  The 2019-20 season average price for upland cotton is forecast 
at 58 cents per pound, unchanged from last month and 12.5 cents lower than in 
2018-19. 

   Globally, supply-demand estimates showed little overall change from a month 
ago. World production dipped 130,000 bales to 124.77 million as declines for 
Brazil, Pakistan, Australia and the United States more than offset a 
million-bale increase to 30.5 million in India. Global mill use also declined 
130,000 bales to 121.61 million and world trade dropped 300,000 bales to 42.9 
million. Expected import declines for China and Vietnam more than offset 
increases for Pakistan and Turkey. Exports for Australia and Brazil also were 
lower. 

   World ending stocks are now forecast at 83.69 million bales, virtually 
unchanged from a month ago but about 3 million bales higher than in 2018-19. 
The global stocks-to-use ratio is projected at 68.8%, up from 67.1% last year. 

   On the demand front, net U.S. all-cotton export sales for this season and 
next increased to 193,100 RB bales during the week ended Oct. 3 from 189,100 RB 
the week before but slid from 256,000 RB during the corresponding week last 
year, USDA figures showed.

   Sales for 2019-20 of 198,400 RB rose from 181,600 RB the prior week and 
110,800 RB last year. But for 2020-21, there were net cancellations of 5,300 
RB, against net sales of 7,500 RB the previous week and 145,200 RB a year ago. 
Current-crop commitments climbed to 9.127 million RB, narrowing the lag behind 
a year ago to 287,000 RB or 3.1%; new-crop commitments slipped to 696,100 RB, 
widening the lag behind cumulative forward sales a year ago to 1.045 million 
RB. 

   Upland net sales quickened to an eight-week high to 188,800 RB, up 6% from 
the prior week and 53% from the prior four-week average. Gross sales were 
198,600 RB and cancellations were 9,800 RB. Sales went to 11 countries, with 
Pakistan accounting for 137,300 RB or 73%. 

   All-cotton shipments of 159,400 RB, down from 167,200 RB the prior week and 
209,600 RB a year ago, brought exports for the season to 1.981 million RB. The 
lead over year-ago exports narrowed to 325,000 RB or 20%. Upland shipments of 
149,100 RB, down 4% from the previous week and 10% from the four-week average, 
went to 21 countries, led by Vietnam, China, Bangladesh, Turkey and India. 

   On the crop scene, widespread hard freezes in the northern Texas High Plains 
may result in many closed bolls not opening if conditions develop as forecast 
tonight and Friday night. Temperatures as low as the mid-20 degrees are 
forecast. However, the large bulk of the Plains crop is believed likely to 
escape serious damage. At Lubbock, lows are forecast at 33 degrees tonight and 
32 degrees Friday night. Many growers have applied or wanted to apply 
defoliants and desiccants as weather permitted. 

   Average first freeze dates in the main cotton areas across the High Plains 
range from about Oct. 18 in the northwest, to Oct. 31 in the central Lubbock 
area and to Nov. 5 in the southern crop district. Weather conditions already 
had brought concerns that yields in many areas wouldn't be up to earlier 
expectations. Widespread heavy rains from late September through early October 
stalled harvesting and applications of harvest-aid chemicals. Hail damaged some 
fields that now won't be harvested. 

   Across the U.S. belt, harvesting advanced nine percentage points during the 
week ended Sunday to reach 25% completed, according to USDA's weekly cotton 
progress and conditions report, down a point from last year but up five points 
from the five-year average. Boll opening rose six points to 83%, up from 76% 
last year and 75% for the five-year average. 

   Cotton rated in good to excellent condition dropped a point to 39% and poor 
to very poor also slipped a point to 19%, compared with 42% and 25%, 
respectively, last year. Twenty-five percent of the Texas crop was harvested, 
three points behind last year but three points above average, while boll 
opening at 77% was up nine points and 12 points, respectively. 

   Classing crossed the million-bale mark at Corpus Christi, rising 197,609 RB 
for the week ended Oct. 3 to 1.008 million, down from 1.19 million RB graded a 
year ago. Quality remained excellent, with 85.8% classed for the season 
tenderable on futures contracts. Beltwide classing of 380,849 RB from 188 gins 
brought the season's total to 1.276 million RB, down from 1.896 million RB a 
year ago. 

   U.S. 2019-crop upland loans outstanding increased 56,436 RB to 188,329 
during the week ended Sept. 30, the latest USDA figures showed. Entries were 
61,140 RB and repayments were made on 4,704 RB. Cotton under loan included 
188,023 RB of Form G loans issued to marketing cooperatives or loan servicing 
agents and 306 RB of Form A issued to individual growers. 

   Upland 2018-crop loans outstanding declined 37,169 RB to 175,013 on 
repayments on 25,477 RB and forfeitures on 11,692 RB. The outstanding loans 
included 103,731 RB of Form G and 71,282 RB of Form A. For both crop years, 
Form G and Form A loans outstanding totaled 363,342 RB. 

   Growers had contracted only 3% of their expected upland acreage by the end 
of September, down from 12% last year and 10% two years ago, according to 
informal surveys by USDA's Agricultural Marketing Service and based on 
estimates of acres for harvest. 

   By regions, contracting compared with last year included 5% and 23% in the 
Southeast, 8% and 18% in the Mid-South, less than 1% and 4% in the Southwest 
and none and 4% in the Far West. These estimates don't include cotton consigned 
to marketing organizations but do include cotton contracted with them. 

   Meanwhile, hedge funds returned to the buy side in cotton futures-options 
combined during the week ended Oct. 1, adding 831 longs and covering 817 shorts 
to reduce their net shorts 1,648 lots or 4.6% to 34,013 lots, according to the 
latest trader-commitments data reported by the Commodity Futures Trading 
Commission. 

   Perpetually long index funds were the largest sellers, adding 1,692 shorts 
and liquidating 387 longs to chop their net longs 2,079 lots to 58,016 lots. 
Non-reportable traders nudged their net longs down 57 lots to 15,017. 
Commercials bought a net 488 lots, adding 568 longs and 80 shorts to drop their 
net shorts to 25,053 lots. 

   Prices during the reporting week traded from 61.45 to 59.58 cents and gained 
58 points for the period on a close at 60.98 cents. Open interest grew 1,104 
lots to a delta-adjusted 307,291, largest since Nov. 6, 2018. 

   Separately, CFTC on-call data released after the close Thursday showed mills 
bought a total of 1,391 lots last week to boost their unpriced sales to 98,657 
lots, 41.9% of the futures OI. Producers sold 916 lots, dropping their unpriced 
position to 68,657 lots. The net call difference widened 2,307 lots to 29,982, 
12.7% of the OI. 

   On the international scene, relationships between Chinese and world prices 
have provided spinners in China with little incentive to purchase imported 
cotton, whether or not tariffs on U.S. cotton were to be removed, says Cotton 
Outlook. 

   Demand in China, the world's largest cotton importer and consumer, has 
focused mainly on the substantial volume of cotton still available from the 
2018-19 crop or supplies from the 2019 state reserve auctions, which ended 
Sept. 30. This year's auctions disposed of almost a million metric tons (4.59 
million bales) acquired by the government between the 2011-12 and 2013-14 
seasons, Cotlook says. 

   Cotlook's calculations suggested that slightly below 2 million tons (about 
9.2 million statistical bales) now remain in government warehouses. This would 
amount to little more than three months of domestic use, some of which is 
considered likely unsuitable for spinning because of age and reduced quality. 

   Trade conjecture thus now centers on state reserves buying intentions.  
Substantial government-sanctioned purchases to replenish state reserve stocks 
potentially could lift market sentiment. 


(KR)

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