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Weekly Cotton Comments                 07/12 05:38

   Cotton Skids to New Contract Lows

   U.S. 2019-20 stocks forecast at 33.3% of total use. World crop expected to 
exceed use by 1.52 million bales. Combined 2018-19 and 2019-20 export sales 
fell to 95,300 RB. U.S. crop ratings improved slightly. Upland 2018-cotton 
under loan dropped to 1.587 million RB. Trend-following funds chopped net 
shorts. Mills priced 380 lots.

By Duane Howell
DTN Cotton Correspondent

   Unable to overcome short-term resistance or clear a technical hurdle 
required to generate upside follow-through momentum, cotton futures headed 
south with a vengeance and hit new contract lows on the heels of USDA's 
supply-demand estimates. 

   December lost 417 points or 6.2% to close at 63.08 cents for the marketing 
week ended Thursday, trading within a 459-point range and settling near the new 
contract low of 62.84 cents. March shed 391 points to close at 64.20 cents, 
posting a new contract low at 64.04 cents, and December 2020 fell 179 points to 
finish at 66.04 cents. 

   Talk circulated that a massive restructuring by Deutsch Bank, a major trader 
in the cotton index and ETF markets, may have contributed to the dive to new 
contract lows. Deutsch Bank AG moved to gut its global ambitions as a trading 
powerhouse, cutting 18,000 jobs and retreating to its German banking roots, The 
Wall Street Journal reported. 

   Traders kept an eye on Tropical Storm Barry churning Thursday night in the 
Gulf of Mexico about 85 miles south of the Mississippi River. A hurricane 
warning was issued for a 100-mile stretch of Louisiana coastline just below 
Baton Rouge and New Orleans. The storm is expected to make landfall late Friday 
into Saturday morning. 

   Volume increased to an average of 29,086 lots per session from 23,634 lots 
the previous week, jumping to 57,393 lots on the initial plunge to new contract 
lows on Tuesday. Open interest expanded 8,780 lots to 187,180, with December's 
up 4,303 lots to 135,697, March's up 2,449 lots to 31,749 and December 2020's 
up 1,329 lots to 11,094. 

   Cash online sales totaled 1,977 bales on The Seam, down from 7,656 bales and 
the lightest since the week ended May 16. Prices fell to an average of 55.03 
cents per pound from 60.92 cents, with daily averages ranging from 28.90 cents 
on 20 bales to 52.80 cents on 1,173 bales. 

   World 2018-19 prices as measured by the Cotlook A Index fell 355 points from 
a week ago to 74.80 cents as of Thursday morning ahead of the futures close; 
the Forward A 2019-20 Index fell 330 points to 74.35 cents. The old-crop 
premium thus narrowed to 45 points. 

   Updated U.S. 2019-20 cotton projections showed a 350,000-bale increase to 5 
million in beginning stocks and a 300,000-bale hike to 6.7 million (unaccounted 
for cotton shifted slightly) in ending stocks owing to decreases in 2018-19 
domestic consumption and exports. A reported slowdown in domestic spinning 
resulted in a 100,000-bale cut to 3 million in mill use and exports were 
lowered 250,000 bales to 14.5 million. 

   Domestic ending stocks in 2019-20 would be the highest since 2007-08 and 
33.3% of projected market offtake, largest since 2008-09 when the stocks-to-use 
ratio was 37.7%. The USDA reduced its forecast of the marketing year average 
price received by producers to 63 cents per pound, a four-year low and down 
from 70 cents projected for 2018-19. 

   Globally, beginning stocks gained 1.74 million bales to 77.53 million, 
production increased 470,000 bales to 25.79 million, consumption fell a million 
bales to 124.27 million and ending stocks jumped 3.16 million or 4.1% to 80.42 
million. Higher beginning stocks stemmed largely from reduced 2018-19 
consumption estimates for Bangladesh and China.

   The decline in 2019-20 world mill use featured reductions for Bangladesh and 
China more than offsetting gains for India, Turkmenistan and Vietnam. World 
production gains of nearly 500,000 bales in both 2018-19 and 2019-20 were 
linked largely to increases in India's crops. 

   With world production in 2019-20 projected up 6.27 million bales from a year 
ago and mill use up 3.2 million bales, the global crop is forecast to exceed 
consumption by 1.52 million bales, compared with a crop shortfall of 1.75 
million bales seen for 2018-19. 

   Combined net U.S. all-cotton export sales for 2018-19 and 2019-20 fell to 
95,300 running bales during the week ended July 4 from 199,400 RB the week 
before and a combined 376,800 RB in current-crop, new-crop sales a year ago, 
USDA's weekly report showed. 

   Sales of 54,100 RB for this season, down from 144,000 the prior week and 
123,500 RB last year, brought 2018-19 commitments to 16.045 million RB. 
Commitments -- outstanding sales plus shipments -- were down 900,000 RB or 5.3% 
from cumulative sales a year ago and were 114% of the USDA estimate, compared 
with 110% of final exports last season. 

   Shipments slipped to 333,200 RB from 356,400 the week before but were up 
from 274,600 RB last year. This brought exports for the season to 12.583 
million RB, down 1.766 million RB or 12% from a year ago. Exports stood at 89% 
of USDA's July estimate, compared with 93% final shipments last year. Shipments 
at a weekly average of roughly 435,800 RB are required to achieve the latest 
USDA estimate. 

   New-crop sales of 41,200 RB, down from 55,400 the previous week and 253,300 
in forward sales a year ago, lifted 2019-20 commitments to 4.154 million RB, 
25% of the USDA forecast. Last year, forward commitments of 6.002 million RB 
were 43% of the reduced 2018-19 export projection. 

   On the U.S. crop scene, cotton rated good to excellent increased two 
percentage points to 54% during the week ended Sunday, up from 41% a year ago, 
according to USDA's weekly progress report. Poor to very poor rose a point to 
19%. 

   Cotton setting bolls at 13% lagged 10 points behind last year and three 
points behind the five-year averages, while squaring at 47% lagged 10 points 
and seven points, respectively. 

   Texas good-excellent cotton improved four points to 48% and poor-very poor 
increased two points to 27%; Georgia cotton gained two points to 60% and 
remained at 13%, respectively. Ten percent of the Texas crop was setting bolls, 
compared with the five-year average of 13% and 17% last year, and squaring at 
37% was down from 43% and 48%, respectively. 

   U.S. 2018-crop upland loans outstanding declined 117,989 RB to 1.587 million 
during the week ended July 1, the latest USDA figures showed.  Entries were 
10,431 RB and repayments totaled 128,354 RB. The entry deadline, extended from 
May 31, expired June 30. Loans were forfeited on 66 RB, raising the season 
total to 81. 

   Upland cotton under loan included 281,056 RB of Form A issued to individual 
growers and 1,306,465 RB of Form G loans issued to marketing cooperatives or 
loan servicing agents. 

   Meanwhile, trend-following funds bought 4,314 lots to chop their net shorts 
to 39,511 lots from a record high in cotton futures-options combined during the 
week ended July 2, according to the Commodity Futures Trading Commission's 
latest supplemental traders-commitments data. 

   They covered 2,390 shorts and added 1,924 longs. Index funds sold 5,301 lots 
to reduce their net longs to 62,085 lots, while non-reportable traders bought 
1,518 lots to reverse to net long 493 lots from net short 1,024 lots. 

   Managed-money traders sold 204 lots, liquidating 191 longs and adding 13 
shorts to nudge their net shorts up to 37,665 lots. Prices traded from 65.57 to 
68.35 cents, basis December. Open interest rose by 5,999 lots after declining 
four consecutive weeks. That was the largest increase since the week ended May 
14. 

   In futures only, non-commercials reduced their net shorts 1.9 points to 13% 
of the OI, which increased 2,709 lots to 178,400. They bought 3,066 lots, 
adding 2,042 longs and covering 1,024 shorts. 

   After the close Thursday, CFTC on-call data showed mills priced 380 lots to 
shave their total unpriced sales to 85,556 lots during the week ended Jan. 5, 
while producers priced 152 lots to trim their unpriced position to 59,085 lots. 

   The net call difference declined 228 lots to 26,471, 14.8% of the rising OI, 
with unpriced mill sales at 47.7%. A year ago, mills had unpriced sales of 
142,833 lots, 56.5% of the OI, with the net call difference of 102,045 lots 
accounting for 40.7%. 


(KR)

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