Massive short-covering attributed mainly to technical considerations has halted a cotton futures skid of unprecedented duration.
Spot December eked out an 18-point gain from the close on Friday, Nov. 1, to finish Thursday, Nov. 7, at 76.76 cents after surging briefly to a 300-point daily limit gain to 78.94 cents at midweek. March edged up 16 points to settle at 78.86 cents.
December lost ground 13 consecutive sessions in an orderly decline averaging mostly about 60 points a day. It rallied from an 11-month low at 75.27 cents to finish Tuesday down only a tick and posted a four-session high on follow-through action on Wednesday.
Speculators and funds were sellers against commercial buying as futures declined and stochastic and relative strength index readings reached grossly oversold levels. Prices finished an inside-range session with slight losses on Thursday.
Cash grower-to-business sales quickened to a crop year high of 31,248 bales from 11,141 bales the prior week on The Seam. Prices fell to an average of 76.02 cents from 78.22 cents, reflecting a decline to 21.87 cents from 23.57 cents in premiums over loan repayment rates.
Rolling from December ahead of first notice on Nov. 22 contributed to widening the December-March spread to or near full carry for some at 239 points ahead of the rally. The spread then traded as tight as 150 points and finished at 210 points. Spread activity totaled as much as 59 percent of the daily volumes.
Expectations for statistically bearish USDA supply-demand estimates on Friday may have been at least partially discounted by the selloff.
Talks at the China National Cotton Reserves Corp. about the resumption of sales from the huge national reserves unnerved traders.
An official at one of ChinaΆs largest cotton trading houses, which imports cotton yarns from Pakistan and India for use in ChinaΆs mills, said traders expect the CNCRC to release some reserves in late November or early December.
Rumors of impending sales from the reserves had circulated last month and contributed to December cotton falling 12.51 cents from the October high to TuesdayΆs low. Confirmation was lacking on any target sales volume or offering price.
The sales price is expected to be less than the 19,000 yuan per metric ton or roughly 140 cents per pound in effect when the last series of sales ended on July 31.
Market support stemmed partly from strong U.S. all-cotton export sales of 306,800 running bales registered for the week ended Oct. 31. Upland sales of 303,700 bales were the largest since April 25. Those included 95,800 bales to Turkey and 91,700 to China.
Light shipments of 94,400 running bales likely were affected by the slow harvest. However, shipments of 1.856 million running bales for the season were 18 percent of the USDA estimate, compared with 16 percent of final 2012-13 shipments at the corresponding point last season.
U.S. harvesting advanced nine percentage points to 43 percent completed during the week ended Nov. 3, 18 points behind a year ago and 11 points behind average. The Texas harvest moved up six points to 37 percent done, behind 44 percent on average.
Boll opening increased three points to 95 percent, down from 98 percent last year and 97 percent for the five-year average.
Condition of cotton remaining on the stalk showed little overall change, with good to excellent down a point at 43 percent, fair up two points at 34 percent and poor to very poor down a point to 23 percent.
In updated supply-demand estimates converted from metric tons to 480-pound bales, the International Cotton Advisory Committee projects world production to exceed consumption by 9.41 million bales this season, up a slight 80,000 bales from the margin foreseen last month.
Production is projected at 118.17 million bales, up 860,000 bales from a month ago, and consumption at 108.76 million bales, up 780,000 bales. Good harvest weather has increased yield, production and quality expectations in Greece and the United States, offsetting decreased crop estimates in Uzbekistan.
With the area planted to cotton expected to increase in 2013-14 in Brazil, ICAC projected production there at 1.6 million metric tons or 7.35 million bales, up 22 percent from last season.
World-ending stocks are projected at a record 95.35 million bales, up 2.21 million on the month and 12 percent above last seasonΆs 85.39 million bales. China is expected to hold 55 percent of the world carryout.
China through October had purchased 4.148 million bales of domestic cotton since resuming stockpile buying on Sept. 18.
This represented 51 percent of the planned quantity for this period and is significantly less than the 7.35 million bales purchased through the corresponding period last season. Purchases a year ago were 58 percent of the planned September-October quantity.
The ICAC again reduced its world price forecast for 2013-14, cutting the projection for the Cotlook A Index 200 points from a month ago to an average of 88 cents. This is flat with 2012-13.
International prices fell from 93 cents per pound at the start of the month to about 85 cents at the end. However, the 2013-14 average for the first three months of the marketing year is 91 cents, up 10 percent from a year ago, ICAC noted.
Meanwhile, trend-following funds sold a bulging 24,469 lots in futures-options combined during the week ended Oct. 29 to reduce their net longs to 5,197 lots, smallest since Nov. 27, 2012, when they were net short. They both liquidated longs and added new shorts.
Index funds sold 814 lots to shave their net longs to 66,580, while non-reportable traders sold 4,890 lots to flip to net short 4,090 lots from net long 800 lots. Commercials bought 30,173 lots, covering 17,480 shorts and adding 12,693 longs to chop their net shorts to 67,687 lots.
