Consolidative trading has prevailed in cotton futures as stocks in deliverable position declined and nearby corn and soybean futures soared to new all-time highs in volatile price swings.
Benchmark December cotton advanced 270 points for the week ended Thursday to close at 72.63 cents, down three ticks from the prior calendar week settlement. It had finished July 13 above highs of the previous three weeks at its highest weekly settlement since May 18.
December entered the new week having settled above its 50-day moving average for the first time since March but fell back below it on Tuesday after forming a double high at 73.40 cents, highest since June 20. Then December finished with two straight closes above the 50-day average.
Certificated stocks fell 50,950 bales to 77,788 as the stopper of deliveries on the expired July contract withdrew cotton. No cotton awaited review.
The decline raised questions about whether new-crop supplies could be certified in time to replenish the stocks for the December delivery if all or most of the remaining stocks are withdrawn. DecemberΆs open interest fell 1,050 lots from a week earlier to 132,337 amid short covering.
Cash grower sales increased to 6,920 bales from 4,060 bales the previous week. Prices advanced 102 points to an average of 62.97 cents, reflecting a 167-point gain to 11.48 cents in premiums over loan repayment rates. Daily price averages ranged from 59.42 to 65.49 cents.
Devastating drought in the Midwest powered August soybeans to a high at $17.49 and a close at $17.333/4, all-time intraday and closing highs, while September corn closed at $8.073/4 after reaching $8.163/4, also record highs.
Wheat futures tagged along, with the September contracts surging 32 cents to $9.38 at Kansas City and 313/4 cents to $9.35 at Chicago.
The potential long-range consequences for cotton acres could be huge, beginning with Southern Hemisphere plantings later this year. The ratio between November soybeans and December cotton has widened to a whopping 23:1 from 19:1 on June 1.
Meanwhile, the market showed no reaction to light net U.S. export sales for the week ended July 12. Old-crop sales were 48,000 running bales and new-crop sales were 36,300 bales.
Commitments reached 12.64 million running bales for 2011-12, about 12 percent above the USDA forecast, and 2.583 million running bales for 2012-13, about 22 percent of the projection.
Shipments rose to 218,400 running bales and brought exports for the season to 10.818 million. With 19 days left in the marketing year, exports were within roughly 433,600 running bales of the USDA forecast.
On the crop scene, U.S. conditions held steady overall during the week ended July 15, according to USDA, snapping a string of six straight weeks of deterioration.
Cotton in good condition rose a percentage point to 37 percent, fair slipped a point to 37 percent, poor also was down a point to 13 percent and very poor expanded a point to 5 percent. Excellent cotton was unchanged at 8 percent.
The good-excellent rating of 45 percent, up a point from the prior week, remained seven points below and the poor-very poor category of 18 percent a point below the respective 10-year averages.
Texas cotton deteriorated, with fair down a point to 40 percent and poor to very poor up a point to 25 percent. GeorgiaΆs crop lost three points to 10 percent in the excellent category and gained three points to 38 percent in the good rating.
Crop ratings also declined in Arizona and Kansas, held about steady in Louisiana, Mississippi and Missouri and improved everywhere else. Some of the biggest improvements were noted in the Southeast aside from Georgia and in California.
Squaring cotton nationally advanced 12 points to 82 percent, up seven points from the five-year average, and cotton setting bolls expanded 13 points to 36 percent, also up seven points from that average.
In the news, China has no plans to sell 300,000 metric tons (1.38 million bales) from state reserves and issue an additional import quota “for now,” Dow Jones reported, quoting a website owned by the China National Cotton Exchange.
The website, CottonChina.org., cited an unidentified government department, the report said. Rumors about an impending sale from the reserves had pressured cotton futures on the Zhengzhou Commodity Exchange.
But the benchmark January contract rebounded to close with a gain for the week of 1.33 percent to 19,205 yuan per metric ton. The China Cotton Index rose to 18,255 yuan per ton or the equivalent of 131.43 cents per pound.
ChinaΆs continued accumulation in its national reserve accounts for most of the projected 2012-13 increase in world stocks and would raise its share of the global carryout to 44 percent, according to USDA.
With a divergence between ChinaΆs domestic price support level and world prices constraining domestic consumption, its stocks could reach 80 percent of total offtake. ItΆs assumed China will release some of the reserve during 2012-13, thereby partially offsetting the need for imports.
With China absorbing the bulk of the worldΆs cotton surplus, stocks in other countries mostly show balanced supply and use, according to USDA.
While U.S. stocks are forecast at 4.8 million bales, a 45 percent increase from the prior year, the projected stocks-to-use ratio is only marginally above the 10-year average. Stocks in countries outside China would account for about 39 percent of their use, in line with the previous two seasons.
Southern Hemisphere stocks are expected to fall about 1.2 million bales, mainly reflecting lower production forecasts in Brazil and Australia. Projected stocks in India and Pakistan, at 30 percent and 28 percent of total use, respectively, are considered adequate but not excessive to support projected offtake.
