By By Duane Howell
Deteriorating U.S. production prospects, ongoing tightness of “free” supplies prior to volume new-crop movement and positive technical action have lifted cotton futures to a new three-month high.
Benchmark December hit an intraday 77.49 cents Tuesday, highest since mid-May, and finished with a gain of 421 points or 5.8 percent to 76.80 cents for the week ended Thursday. It reached into a resistance area seen earlier from 77-79.
The high marked a 1,288-point gain or 19.9 percent from the calendar year low June 4. This represented a 39.3 percent retracement of the 3,278-point plunge from the 2012 high in February to the June low. A 50 percent retracement would be 81 cents.
December topped the previous 12-week high of 77.07 cents reached the day before USDAΆs bearish updated supply-demand estimates and posted eight consecutive higher daily lows following the low print of 71.59 cents on the reaction to the report.
Producers stepped up scale-up selling above 76 cents. Growers had contracted only 10 percent of the U.S. upland planted area as of Aug. 1 as estimated by USDA, down from bookings of 26 percent a year ago.
Cash grower-to-business sales on The Seam increased to 9,417 bales from 3,893 bales. Prices rose to an average of 71.07 cents from 69.36 cents as premiums over loan repayment rates climbed to 18.23 cents from 17.60 cents. Daily average prices ranged from 64.14 to 75.87 cents.
The market showed subdued reaction to news that China issued a long-anticipated processing trade quota of 400,000 metric tons (1.84 million 480-pound bales).
This quota is for mills that pledge to export the finished goods. It is expected to facilitate sales of cotton already on shippersΆ books. Estimates have indicated around a million bales of consignment cotton are in Chinese ports.
Beijing also was reported considering releasing from the strategic reserves around a million tons (4.59 million bales) at prices below the procurement level to meet demand and make room for the new crop.
ChinaΆs overall 2012-13 stocks are estimated to increase from a beginning inventory of 29.28 million to a carryout of 34.18 million bales, 42 percent and 46 percent, respectively, of the world totals.
The stocks plus its own crop theoretically would be more than enough to satisfy domestic mill demand. Yet imports still will be needed. Export-oriented textile mills couldnΆt compete in the international marketplace if they were to pay domestic prices for raw cotton.
The China Cotton Index was quoted Thursday at 18,413 yuan per metric ton or the equivalent of 132.28 cents per pound, while world values as measured by the Cotlook A Index stood at 86.60 cents.
Earlier, talk circulated that India may restrict exports because of reduced output owing to smaller plantings linked to both weak cotton prices and limited monsoon rainfall in key areas thus far.
However, the Cotton Advisory Board, which had been expected to issue its first 2012-13 production forecast, said more time was needed to assess production prospects.
But the CAB did estimate the planted area, pegging it at 11.02 million hectares (one hectare equals 2.471 acres), down 9.5 percent from 12.17 million the previous year.
The USDA earlier this month estimated the area at 10.8 million hectares, down from the high of 12.2 million the previous season. India plants the worldΆs largest cotton area and is the second-leading producer.
In revised 2011-12 estimates, the CAB put production at 35.3 million 170-kilo bales and consumption at 25.53 million. In 480-pound bales, the CAB estimates compared with the USA figures are 1.08 million higher on the crop and 550,000 lower on consumption.
Traders kept wary eyes on the projected path of Tropical Storm Isaac as it headed for Florida by Monday. Open cotton as of Aug. 19 ranged up to 31 percent in the Delta and 12 percent in the Southeast.
U.S. crop ratings deteriorated for the fourth consecutive week, USDA reported, with good to excellent down a percentage point to 41 percent and poor to very poor up two points to 30 percent.
Good-excellent stood 11 points below and poor-very poor 10 points above the 10-year averages. Conditions were the lowest of the season.
Cotton rated good to excellent in Texas declined two points to 22 percent, fair dropped a point to 32 percent and poor to very poor rose two points to 46 percent. In Georgia, good-excellent cotton held steady at 60 percent and poor-very poor gained a point to 7 percent.
Elsewhere, conditions improved in Alabama, Arizona, Missouri, North Carolina and Tennessee; declined in Kansas, Louisiana, Mississippi, Oklahoma and Virginia; and held steady in Arkansas and South Carolina.
Cotton setting bolls across the belt expanded four points to 93 percent, against 92 percent a year ago and 87 percent for the five-year average, while boll opening increased five points to 17 percent, up from 15 percent and 14 percent, respectively.
Net U.S. all-cotton weekly export sales came in about as expected at 87,900 running bales, boosting 2012-13 commitments to 4.469 million. This is about 38 percent of the USDA forecast. Bookings by China totaled about 42 percent.
All-cotton shipments of 145,100 running bales boosted the seasonΆs exports for the young season to 341,600, up from 257,300 bales a year ago,
Meanwhile, producer on-call fixations based in December jumped to 3,106 lots during the week ended Aug. 17, reducing their unfixed holdings to 15,869 lots, according to the latest data from the Commodity Futures Trading Commission.
Unfixed mill holdings dipped 75 lots to 16,751. On a net basis, mills had 882 more lots to be priced than did producers. This reflected a flip-flop from a week earlier when unfixed producer positions outweighed those on the mill side by 2,149 lots.
