Weekly Cotton Comments 05/25 05:27
Cotton Climbs to 4-Year High Spot Close
Easing of U.S.-China trade tensions and weather concerns in both countries
helped drive prices. Trade deal uncertainty later encouraged profit-taking.
Market rose in face of crop year low in export sales. Outstanding mill sales
represented 36% of July open interest. Index fund rolls expected to meet mill
fixation buying. U.S. crop 52% planted.
By Duane Howell
DTN Cotton Correspondent
An easing of U.S.-China trade tensions helped to drive spot July to a
four-year high close early in the marketing week and weather concerns
contributed to December ending on a new contract high finish.
July gained 243 points for the week ended Thursday to settle at 87.46 cents.
The last of the 2017-crop deliveries surged to a new contract high finish at
88.73 cents on Monday, highest spot futures close since June 19, 2014, and rose
to a new high the next session to 89.88 cents, near the 90-cent target of some
Then it made an abrupt bearish reversal, settling Tuesday with a
triple-digit loss, but held the next two sessions around Tuesday's low and
bounced to end with a moderate day gain on Thursday. July ended in the middle
of the period's 483-point range.
December jumped 410 points to close at 85.55 cents, trading within a
606-point range and clearing the psychological hurdle of 85 cents. It has
closed higher seven of the last eight sessions, made four new contract highs
and settled near its new high of 85.74 cents.
With the speculative community rolling longs from July, selling July and
buying December, the inverted July-December straddle narrowed 167 points to
close at a 191-point July premium. December took the open interest lead,
expanding 12,099 lots from a week ago to 133,114 coming into Thursday, while
July's OI lost 6,403 lots to 124,320.
The market hit new contract highs as far out as December 2019 on Monday on
news that a potential U.S.-China trade war was declared "on hold" after the
world's two largest economies agreed to drop their tariff threats while they
work on a wider trade agreement.
Treasury Secretary Steven Mnuchin said the United States expects a big
increase of between 35 percent and 40 percent in agricultural exports to China
this year alone and a doubling of energy purchases over the next three to five
years. Cotton would be expected to be a major beneficiary.
President Donald Trump later said he was not pleased with the trade talks
and called for "a different structure" in any deal, adding to uncertainty over
the negotiations and contributing to profit-taking in old-crop cotton futures.
However, the midweek release of minutes from the Federal Reserve's last
meeting eased market concerns that it would raise interest rates more quickly
than expected, helping to push major U.S. stock indexes into positive territory
and contributing to support for old-crop cotton prices.
The cotton market closed higher in the face of a crop year low in U.S.
weekly 2017-18 export sales. Some analysts attributed the slump to tight supply
availability, especially of high grades. Supplies are expected to remain tight
until the volume movement of new-crop cotton.
All-cotton sales for shipment this season fell to 51,600 running bales, but
they still nudged the lead over year-ago commitments out 30,000 RB to 2.553
million to maintain a gap of 18%. Commitments of 16.833 million RB were 112% of
the USDA export estimate, against 99% of final 2016-17 shipments a year ago.
Cumulative sales and shipments have continued to support expectations that
USDA likely will be compelled to raise its 2017-18 export projection.
Sales for next season of 152,200 RB boosted 2018-19 commitments to 4.294
million, 1.381 million RB or 47% ahead of forward bookings a year ago. New-crop
commitments are 29% of the USDA forecast, up from forward sales last year at
19% of the 2017-18 projection.
Shipments of 421,000 RB raised the total for the season to 11.514 million
RB, up 93,000 RB from a year ago and 76% of the USDA estimate. Exports
averaging 329,100 RB a week for the remainder of the season would achieve the
Hot, mostly dry conditions forecast for the droughty Texas Plains, excessive
rains in parts of the Southeast and ongoing concerns about weather damage to
cotton in China's main Xinjiang producing region offered new-crop support.
China's reserves stocks auctions have sold out four sessions in a row.
Meanwhile, mills priced 3,090 on-call lots in July during the prior calendar
week to reduce their outstanding sales there to 46,553 lots, according to the
latest call data reported by the Commodity Futures Trading Commission. Their
unpriced sales were 36.04% of the declining July open interest, compared with
36.86% a week earlier.
Mills boosted their total unpriced sales across the board by 1,785 lots to a
record 164,837, topping the previous mark of 163,680 lots on May 14.
Managed-money funds held a net long position of 89,260 lots in cotton
futures-options combined as of May 15, down 8,605 lots from a week earlier, the
latest CFTC disaggregated traders-commitments data showed.
They liquidated 6,552 longs and added 2,053 shorts during the reporting week
to reduce their net longs after a buildup of five consecutive weeks. Prices
ended the reporting week with a loss of 162 points, basis July, and rebounded
279 points the next three sessions as futures-only open interest gained 7,098
lots to 290,042. The OI increase as prices rose suggested fresh fund buying.
Index funds, which nudged their net longs up 485 lots to 85,078, will begin
scheduled rolling of their net longs from July on May 30, with the selling in
July expected to meet on-call mill fixation buying. First notice day for July
is 20 trading sessions ahead, on June 25, with July options scheduled to expire
on June 15.
On the crop scene, U.S. cotton planting advanced 16 percentage points to 52%
completed during the week ended last Sunday, up three points from a year ago
and seven points from the five-year average, USDA's progress report showed.
Progress in Texas moved at a 15-point clip to 43% planted, up from 39
percent last year and 33% on average. Eight percent was squaring, even with
last year but behind the average of 5%.
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