By Duane Howell
Persistent long liquidation by funds and speculators triggered stop-loss selling and drove cotton futures to new eight-week lows last week.
Benchmark July lost 225 points for the week ended Thursday. It closed the day with a modest inside-range bounce after hitting a new intraday low the previous session at 82.84 cents, lowest since Feb. 26.
Maturing May shed 219 points to close at 81.33 cents and new-crop December dropped 180 points to finish at 83.28 cents. December finished at a five-point premium to July after trading at discounts as wide as 77 points a week earlier and 525 points in mid-March.
Cash grower-to-business trading remained inactive six consecutive sessions and seven of the last eight on The Seam.
Technical signals deteriorated. July posted back-to-back closes below the low of the bullish outside-range reversal of April 17, which had disappointed the bulls with a lack of follow-through, and its 50-day moving average turned downward. July tested the 82-cent area several times during February, now a near-term support area, analysts noted.
Continued growth of large certificated stocks stirred concern that July could bear the brunt of the buildup. Stocks grew to 507,272 bales, largest since June 23, 2010, with 2,790 bales awaiting review.
A sharp drop in MayΆs open interest heading into first notice day at midweek indicated that owners of the cert stocks had largely rolled out of that delivery as its board discount had widened to and beyond variable full carry for most.
The first-day notices totaled a light 122 lots (12,200 bales), all issued by Newedge USA for a customer and scattered among eight stoppers. ADM Investor Services took 46 or 37 percent for a customer and Term Commodities, trading arm of Allenberg Cotton Co., stopped 42 or 34 percent for the house. Twenty-nine notices were issued the second day.
Open interest in May had fallen to only 639 lots going into ThursdayΆs session, leaving an open question on the fate of the heavy certificated stocks.
Supportive U.S. weekly export sales and shipments aided the futures bounce. Sales of 245,000 running bales for delivery this season lifted commitments to 12.253 million RB, 97 percent of the USDA estimate.
Shipments of 350,700 bales boosted the total for the season to 9.309 million, widening the lead over exports a year ago to 1.551 million bales. Exports have reached 74 percent of the forecast, against 68 percent of final shipments at the corresponding point last season.
To achieve the estimate, shipments now need to average roughly 236,000 running bales a week.
On the crop scene, U.S. planting progress crept up two percentage points during the week ended April 21 to reach 10 percent, four points behind average and seven points behind last year, USDA reported.
Growers in Texas had planted 12 percent, lagging the average by five points and last year by 10 points, while producers in Georgia had seeded 3 percent, down from 5 percent and 12 percent, respectively.
Planting was ahead of last year only in Arizona and California at 55 percent and 60 percent, respectively. The only other states with cotton in the ground included Alabama, 9 percent; Arkansas, 1 percent; North Carolina, 8 percent; and South Carolina, 7 percent.
Dry soils on the Texas High Plains have remained a supportive factor as the opening of regionΆs traditional optimum cotton planting period approaches on May 5.
Rainfall probabilities normally begin to improve during the third week of March, but Lubbock measured only a trace of precipitation last month, compared with a normal of 1.10 inches.
Subsoil moisture — an important reservoir for tap-rooted cotton that makes it into the summer — is scant, depleted by the ongoing long-term drought which began in the fall of 2010.
From October through April thus far, a period for fresh accumulation of subsoil moisture for the upcoming crop, precipitation at Lubbock has totaled only 3.24 inches, 43 percent of the normal 7 inches.
The past 24 to 30 months ranked from the first to third driest for similar length droughts, the National Service at Lubbock said last month in a drought report. Lubbock had an all-time low of 5.86 inches in 2011 and just 11.43 inches in 2012, against the annual normal of 19.12 inches.
A devastating drought in the 1950s lasted six years. Long-term records show the region experienced similar two-year droughts around 1909-10, 1916-18, 1933-34 and 1950-56.
Since 1956, the region has seen some bad single-year droughts, the report noted, but nothing of this extreme lasting two years or more.
Winter precipitation in January and February provided some relief, allowing farmers to put up the land in good shape, but no significant moisture has fallen since Feb. 25.
Macro issues, including concerns over slowed economic growth in China, weighed on market sentiment. The HSBC preliminary purchasing managersΆ index for China came out at 50.5 for April, compared with a final reading of 51.6 for March, indicating slower growth in manufacturing in the worldΆs second-largest economy and largest cotton consumer.
Separately, ChinaΆs cotton imports in March slowed 15 percent from a year earlier to 528,808 metric tons (2.43 million 480-pound bales), customs data showed. January-March imports fell 13 percent to 1.37 million tons (6.3 million bales).
Meanwhile, trend-following funds sold 11,143 lots in cotton futures-options combined during the week ended April 16 to cut their net long position by 18 percent to 51,516 lots, according to government data.
Index funds bought a net 4,149 lots to raise their net longs to 75,162 lots, while small traders sold a net 328 lots to trim theirs to 9,990 lots. Commercials bought a net 7,321 lots, covering 22,234 shorts and liquidating 15,056 longs to reduce their net shorts to 136,668 lots.
In futures only, non-commercials reduced their net longs by 4.3 percentage points to 29.3 percent of the open interest.