Delta reported losing cotton infrastructure. Recent price skid whetted interest in weekly export sales report.
Cotton futures closed lower Wednesday, giving back some of the sharp gains of the prior two days amid inside-range price action.
Spot July closed off 104 points at 83.52 cents, in the lower quarter of its 150-point range — set by 7:35 a.m. CDT — from up 19 points at 84.75 to down 131 points at 83.25 cents. Mill demand eased when two-day price gains almost wiped out losses of the last two weeks of May, analysts said.
December settled down 54 points to 84.90 cents, in the upper third of its 144-point range from down 14 points at 85.30 to down 158 points at 83.86 cents. Both July and December remained inside TuesdayΆs ranges.
Volume slowed to an estimated 26,800 lots from 57,736 the previous session when spreads totaled 23,892 lots or 42%, block trades 400 lots, EFP 160 lots and EFS 34 lots. Options volume totaled 7,485 calls and 6,132 puts.
This is a rather frightening time for the cotton industry in the Delta, says John Bondurant, Memphis-based trader and Delta producer.
“I still canΆt get over how little cotton is around,” he said this week after driving to his Arkansas farm. “On my 40-mile drive over I saw two fields of cotton. Fields that havenΆt been in anything but cotton for over 50 years are now in wheat and corn.”
The Delta is losing its infrastructure for cotton, mainly by losing cotton pickers, Bondurant said last week in his Notebook report.
“A new on-board, module-building picker costs around $650,000 and only picks one crop,” he noted. “Many farmers have sold their cotton pickers. I doubt they will want to get back into cotton unless the profit potential is staggering. How do you make a cotton picker pay off when you only use it one or two years out of five?”
December 14 cotton futures are lower in price than December 2013, he observed, while December 2014 prices for corn, soybeans and wheat are $100 to $250 more profitable than cotton for the 2014 season.
The USDA has projected 2013 cotton plantings in the five Delta states at 1.26 million acres, down 38% from 2.03 million acres in 2012.
Meanwhile, the nine-session price skid in spot futures through Friday has whetted interest in the U.S. weekly export sales report scheduled for release by USDA at 7:30 a.m. CDT on Thursday.
Closing spot July prices for the holiday-shortened reporting week ended May 30 ranged between 81.49 and 80.13 cents. The subsequent close below 80 cents on May 31 apparently really spurred demand, triggered aggressive short covering and helped send futures soaring on Monday and Tuesday.
With China importing more cotton than expected earlier, U.S. 2012-13 exports are forecast to expand and claim a 29% share of world trade, up from 26% last season.
Futures open interest gained 1,847 lots Tuesday to 180,736, with JulyΆs down 1,596 lots to 92,517 and DecemberΆs up 3,157 lots to 80,533.
Certificated stocks grew 2,350 bales to 520,675. There were 3,222 newly certified bales, 872 bales decertified and 13,191 bales awaiting review.
World prices as measured by the Cotlook A Index gained 160 points Wednesday morning to 93.10 cents. The index premium to TuesdayΆs July futures settlement narrowed 60 points to 8.54 cents.
The China Cotton Index dropped 3 yuan to 19,332 yuan per metric ton or 141.27 cents per pound.