By Duane Howell
For the Avalanche-Journal
Current-crop cotton futures have consolidated with marginal losses on the heels of a technically bearish outside-range weekly reversal to the downside and the lowest calendar-week finish since Dec. 7.
Spot March dipped 62 points for the holiday-abbreviated trading week ended Thursday to close at 75.39 cents, while May slipped 41 points to 76.22 cents and July eased 16 ticks to 77.24 cents. Spread trading increased, accounting for up to 45 percent of daily volumes.
New-crop December gained ground, rising 98 points to settle at 79.47 cents after hitting a 15-week high at 79.74 cents. Expectations for a steep reduction in cotton plantings offered support.
Cash grower-to-business trading slowed to 24,781 bales on The Seam from 43,628 bales the previous week. Prices fell to an average of 67.16 cents from 69.42 cents, while premiums over loan repayment rates declined 33 points to 16.74 cents. Daily price averages ranged from 63.10 to 68.66 cents.
The futures reversal for the week ended Dec. 28 had sparked talk that the market may have made a near-term top. March had hit a high of 77.10 cents, its highest intraday print since Sept. 19, but finished below the low of the prior week at the lowest weekly close since Dec. 7.
Cotton could get an injection of fresh longs from ongoing fund rebalancing because of its relative cheapness, some analysts say. It finished 2012 down 18 percent on the year, the third-steepest annual decline among 19 commodities tracked by the Commodity Research Bureau, and lost more than 36 percent in 2011.
The economically sensitive cotton market made the high for the week after Congress approved a bill to prevent huge tax hikes and spending cuts that had threatened to throw the worldΆs largest economy into recession and generate a slump in global growth.
MarchΆs rally stalled 15 points shy of the prior weekΆs high amid talk of scant export inquiries, with China continuing on extended holiday.
Talk also circulated that Chinese policy proposals would require domestic mills to purchase cotton from the strategic reserve and also allow an additional import quota on a ratio of 3:1.
The proposals were viewed initially as bearish, but some analysts say they also could be construed as bullish because of the allowance for an expanded import quota.
A big policy announcement of some kind is expected before or after the Lunar New Year, which falls on a different day each year and this year is Feb. 10.
On the U.S. crop scene, classing slowed to 379,993 running bales of all cotton during the week ended Dec. 27 from 812,283 bales the previous week to hike the total for the season to 14.906 million.
Converted to statistical 480-pound bales, the classing total indicated USDA had graded about 89 percent of the December crop estimate.
Upland classing fell to 356,081 running bales from 758,325 bales the prior week, boosting the total for the season to 14.354 million. Cotton tenderable on futures contracts rose to 65.5 percent for the week from 63.8 percent the previous week and totaled 58.4 percent for the season.
The crop remains on track to have the lowest percentage of cotton meeting tenderable quality requirements for delivery on futures contracts in years.
Classing in the two top producing states declined to 69,214 running bales in Texas and to 128,836 bales in Georgia. This pushed the state totals to 4.730 million bales in Texas and 2.205 million in Georgia, about 89 percent and 84 percent of the state production estimates, respectively.
In supportive international news, ChinaΆs HSBC manufacturing purchasing managersΆ index for December rose to a 19-month high at 51.5 from 50.5 in November and the preliminary 50.9 earlier in the month.
The reading, which indicates expansion in manufacturing activity, added to growing evidence that the Chinese economy is recovering.
Dow Jones Newswires quoted HSBCΆs chief economist for China as saying in a statement that a growth recovery of around 8.6 percent year on year is expected in 2013 despite ongoing external headwinds.
China booked 3.871 million running bales of U.S. cotton through Dec. 20 for delivery this season, 44 percent of the total export sales to all destinations, USDA figures showed. Shipments to China had totaled 1.367 million bales, 35 percent of its bookings.
China also accounted for 238,600 bales of outstanding optional origin sales. These can be either U.S. or foreign cottons.
Meanwhile, U.S. all-cotton outstanding loans increased 215,031 bales on entries of 434,331 bales and repayments on 219,300 bales during the week ended Dec. 26, according to the latest USDA data.
This boosted outstanding loans on 2012-crop cotton to 4.482 million bales, including 640,397 bales of Form A issued to individual growers and 3,841,851 bales of Form G issued to marketing cooperatives or loan servicing agents.
Loans still outstanding on 2011-crop cotton fell 159 bales to 13,224 — 7,142 bales of Form A and 6,082 bales of Form G. Forfeitures for the season have totaled 585 bales.
In cotton futures with options, trend-following funds bought 3,853 lots during the week ended Dec. 24 to increase their net long position by 16 percent to 27,740 lots, according to traders-commitments data from the Commodity Futures Trading Commission.
Those funds covered more than eight times as many shorts (3,446 lots) as they added longs (447 lots). Index funds sold a net 1,042 lots to reduce their net longs to 66,362 lots, while traders with non-reportable positions bought a net 925 lots to raise theirs to 5,793.
Commercials sold a net 3,736 lots, adding 4,385 shorts along with 649 longs to boost their net short position to 99,895 lots.
DUANE HOWELL IS RETIRED FARM EDITOR OF THE AVALANCHE-JOURNAL. HE CAN BE REACHED AT DUANE.HOWELL@SBCGLOBAL.NET.
