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.
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
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
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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