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Weekly Cotton Comments                 03/05 05:15

   Cotton Breaks Below Last Week's Low

   All-cotton exports reported up 1.26 million RB from a year ago.  Hedge funds 
bought 4,546 lots prior to a massive downside reversal.  Unpriced mill on-call 
sales declined 5,460 lots in spot May last week.  Cotlook projected a 2021-22 
world cotton production shortfall of 1.39 million bales, compared with 2.5 
million bales forecast by USDA. 

Duane Howell
DTN Contributing Cotton Analyst

   Cotton futures extended last Thursday's massive outside-day meltdown, with 
spot May finishing this marketing week down 255 points or 2.84% to 87.14 cents, 
its lowest close since Feb. 11.

   May settled below important support seen at last Friday's low of 87.28, 
which had culminated that calendar week's bearish "outside-week" reversal. It 
closed in the lower quarter of its 617-point trading range, from 92.80 on 
Monday to 86.63 cents on Thursday. Nearby support is seen at 85.80.

   The May-July switch widened 31 ticks to settle at 99 points of carry, while 
the inverted intercrop July-December straddle narrowed 27 ticks to close at 
4.13 cents. March, where the open contracts dropped to zero on a 10-lot trade 
on Wednesday, settled 155 points below May. March delivery notices totaled 91.

   Volume increased to an average of 40,561 lots per session from 35,025 lots. 
Open interest fell 12,331 lots to 237,483, with May's down 13,787 lots to 
107,549; July's down 1,846 lots to 56,662; December's up 1,852 lots to 56,662; 
and March's up 190 lots to 6,795. Cert stocks declined 447 bales to 99,789.

   In outside markets, the three major U.S. stock indexes tumbled Thursday as 
Treasury yields resurged amid concerns over rising inflation, pressuring some 
industrial commodity prices. Oil prices were an exception, flying higher on 
reports that OPEC and its allies were going to keep production cuts in place. 
The U.S. dollar index moved higher.

   Cash online cotton sales increased to 15,092 bales for the week from 8,728 
bales on The Seam. Prices gained 282 points to average 83.67 cents per pound, 
reflecting a 172-point gain to 35 cents in premiums over loan rates. 
Grower-to-business sales rose to 8,551 bales and business-to-business sales 
climbed to 6,541 bales. Offerings late Wednesday were 35,382 bales.

   On the competitive front, the average of the five lowest-priced U.S. growths 
for the Far East declined 181 points to 93.20 cents, while the lowest-priced 
U.S. growth landed there fell 185 points to 97.10 cents. The U.S. premium thus 
narrowed four points to 3.90 cents. The weekly adjusted world price fell to 
73.95 cents, 21.95 cents over the base U.S. loan. For 2020-crop cotton, the 
fine-count adjustment is 1.10 cents.

   The Cotlook A Index of world values fell 485 points from a week ago to 93.65 
cents Thursday morning, widening the international basis over the prior-day May 
futures settlement 39 points to 5.20 cents. The China Cotton Index rose by a 
cent to the equivalent of 116.8 cents per pound.

   On the demand scene, net all-cotton export sales for this season and next 
slipped to a combined 217,400 running bales for the week ended Feb. 25 from 
300,400 RB the prior week and from 457,800 RB during the corresponding week 
last year.

   Upland net sales of 169,000 RB for this season, down 32% from the prior week 
and 27% from the four-week average, reflected gross sales of 213,400 RB and 
cancellations of 44,300 RB. Sales went to 14 countries, led by Vietnam, 
Pakistan and China. Cancellations were mainly for Turkey.

   All-cotton commitments for 2020-21 (outstanding sales of 5.722 million RB 
plus shipments) reached 14.286 million RB, down 243,000 RB or 1.7% from 
cumulative sales a year ago. Commitments were 95% of the USDA estimate, 
compared with 96% of final shipments at this point last season.

   Net sales for next season of 40,600 RB, up from 2,100 RB the week before but 
down from 53,200 RB in forward sales a year ago, brought 2021-22 commitments to 
1.198 million RB. Total new-crop bookings were down 374,000 RB from forward 
commitments last year.

   All-cotton shipments quickened to 386,500 RB from 304,600 RB the previous 
week but were down from 494,100 RB a year ago. Upland shipments of 377,400 RB, 
up 29% from the previous week and 11% from the four-week average, went to 22 
countries, headed by Vietnam, China and Pakistan.

   Combined upland and extra-long staple exports climbed to 8.564 million RB 
for the season, up a narrowed 1.262 million RB or 17% from year-ago shipments 
of 7.302 million RB. Exports were 57% of the USDA estimate, compared with 48% 
of final 2019-20 shipments a year ago.

   All-cotton shipments of roughly 296,900 RB per week would reach the USDA 
projection, while sales averaging approximately 34,000 RB a week would make 
commitments match the export forecast.

   On the money-flow front, trend-following funds bought 4,546 lots in cotton 
futures-options combined during the week ended Feb. 23, raising their net longs 
to 74,226 lots, according to the latest trader-commitments data reported by the 
Commodity Futures Trading Commission.

   They added 4,472 longs and covered 74 shorts for the period, which closed 
before the market a couple of sessions later featured a massive outside-day 
reversal to the downside when May locked down the 400-point daily limit after 
surging to a new a new contract high.

   The combined net longs of the hedge funds and smaller speculators rose to 
88,354 lots. They were net long 29.3% of the OI, up from 28.8%. Index funds 
were relatively quiet, selling a net 320 lots to trim their net longs to 80,044.

   Commercials sold a net 4,550 lots, adding 8,565 shorts and 4,015 longs to 
boost their net shorts to 168,397 lots, a new high since August 2018. They were 
net short 55.8% of the rising OI, down from 56.5%.

   Prices during the reporting week ranged from 89.11 to 93.21 cents, a new 
contract high at the time. Combined open interest rose by 11,938 lots to a 
delta-adjusted 301,974.

   After the close Thursday, on-call CFTC data showed unpriced mill sales in 
May declined 5,460 lots to 27,063 last week, while the unfixed producer 
position fell 655 lots to 6,392. The net call difference dropped 4,805 lots to 
20,671, 18.05% of the declining May open interest, down from 20.9%. Unpriced 
mill sales were 23.6% of the OI, down from 26.8%, and outweighed the unfixed 
producer position by 4.23:1, down from 4.61:1.  

   In its first forecasts for the 2021-22 marketing year, converted here to 
480-pound statistical bales, Cotton Outlook put world cotton production at 
115.79 million, up 4.99 million or 4.5% from 2020-21, and consumption at 117.18 
million, up 4.46 million or about 4%.

   The production shortfall thus is projected at 1.39 million bales, against 
1.92 million Cotlook estimated for 2020-21. Rising world prices is expected to 
lead to higher production in most producing countries.

   However, lower production is expected in China. Although the area devoted to 
cotton in China isn't expected to fluctuate greatly, the exceptionally good 
yields achieved in 2020-21 are believed unlikely to be repeated. China's 
production is expected to fall 1.47 million bales or about 5% to 27.1 million. 
That would be the world's second largest output behind India's 28.89 million 
bales, up 1.4% from 28.5 million in 2020-21.

   The further recovery of world consumption is predicated on the successful 
rollout of pandemic 19 vaccines during the months ahead, a return to more 
robust growth across the major economies and improvement in retail spending on 
textiles and clothing.

   At its Outlook Forum last month, USDA projected a 2021-22 world production 
shortfall of 2.5 million bales, against 3.1 million this season. The crop is 
forecast up 4.7% to 119.5 million and total use up 4.1% to 122 million bales.


   The agency forecast a 2.6% decline in world ending stocks to 93.2 million 
bales from 95.7 million. This would mean a stocks-to-use ratio of 76.4% in 
2021-22, down from 81.7% estimated for this season and 96.2% in 2019-20 but up 
from 66.4% in 2018-19.

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