FEBRUARY 16, 2018

NEARBY COTTON FUTURES TREND LOWER, NEW CROP FUTURES FARE BETTER

Nearby cotton futures spent most of the week slowly winding lower. Speculators continued to sell out of their futures positions, and open interest, the count of all open futures contracts in the market, fell 26,628 to 259,069 from last Thursday’s close. March futures touched a high of 77.47 cents per pound Monday but closed with marginal new lows each day thereafter. Daily volume was still very high at 71,698 contracts on Monday as index funds finished rolling their positions forward to May but dropped steadily over the week with 36,342 contracts trading Thursday. New crop futures performed better than March and May. December 2018 futures stayed within the range from 75.12 to 75.96 cents all week.

NCC RELEASES SURVEY RESULTS

Last Saturday, the National Cotton Council (NCC) delivered its Economic Outlook, including its planting intentions survey results, at its annual meeting in Fort Worth. The survey showed mixed intentions across the main cotton regions with some increasing and some decreasing cotton plantings; however, respondents intended to increase total planted acreage by 3.7 percent to 13.1 million acres. Nevertheless, the increased acreage did not translate into higher production in NCC’s analysis. Acknowledging the drought in the Southwest, NCC expects higher abandonment this year at 15.4 percent, along with lower yield at 842 pounds per harvested acre, resulting in 19.42 million bales of production and ending stocks of 7.04 million bales.

USDA CLASSING TOTALS 19.13 MILLION BALES

Classing has slowed this week. The number of gins with samples classed fell to 138 from 189 last week. The number of samples classed also fell to 250,020 from 360,952 last week. Delta states are virtually finished, and the Southeast is almost done, too. Texas, Oklahoma, California, Arizona and Kansas made up more than 96 percent of this week’s volume. All the Oklahoma and Kansas gins were still receiving classing from the classing office. For the season, USDA has classed 19,130,845 bales of Upland and Pima cotton combined. Converting to the USDA’s 480-pound statistical bale, there are still approximately 1.5 million bales left to hit the current production estimate.

EXPORT SALES INDICATE DEMAND STILL GOOD

Cotton exporters made net new sales of 364,800 bales in the week ended February 8, which signals demand is still very healthy. The largest buyers were Turkey (67,700 bales), Vietnam (66,800), China (56,700), Bangladesh (55,000), and India (34,000). The broad distribution of sales across 19 markets was another good sign that mills are able to handle these price levels. Actual shipments of cotton were less than last week, and the pace continues to be a concern among many traders. Nevertheless, there are signs that shipments may accelerate, and it would only take a few good weeks to allay traders’ fears.

ON-CALL FIXATIONS

Mills did another excellent job of reducing their on-call exposure last week. Mills fixed more than half their remaining March commitment in the week ended last Friday, which left them with just 894,200 bales to fix against March futures this week. We expect nearly all of March and some of the May on-call position has been fixed this week, too. While the May and July fixation commitments remain large, there are two months before mills face another fixation deadline. The aggressive fixations have bought the mills a little more time.

MARKETS QUIETER DUE TO HOLIDAYS

Traders have a lighter week ahead. Cash markets are calming down in the rest of the country, although they will remain somewhat active here in the Southwest as ginning and classing continue. Export markets also are quieter this week as East Asia celebrates the Lunar New Year and Spring Festival. U.S. traders also have something to observe. President’s Day will shut down the futures market on Monday and delay the U.S. Export Sales report, which is the key information traders will be watching in the week ahead.

CURRENT PRICES SEEM TO WORK FOR BUYERS

Neither the USDA nor NCC’s looser balance sheets seem to have terribly troubled the market. The aggressive export sales pace, along with mills’ fixations, signal that current prices are workable for buyers. In addition to new buying, drought prospects and a decent rally in competing row crop prices have helped to support prices, too. There is plenty of demand for U.S. cotton, but next year’s supply is still uncertain.

IN THE WEEK AHEAD:

• The Export Sales report will be released Friday at 7:30 a.m. Central Time.
• The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. Central Time.
• The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. Central Time.