By Duane Howell
Relentless speculative long liquidation amid sluggish demand has maintained pressure on cotton futures.
The orderly retreat reinforced negative technical factors as benchmark December slipped 94 points for the week ended Thursday to close at 83.24 cents, its lowest settlement since June 24. March fell 132 points to settle at 82.31 cents.
December, which closed below its 200-day moving average, lost ground three sessions in a row and eight of the last nine. Its declining nine-day moving average crossed under the also declining 40-day average, a negative technical signal.
With one trading session left in the month, December was on the verge of posting a bearish outside-range reversal on the monthly chart. It plunged from 93.72 cents on Aug. 16 to 83.22 cents on Thursday, two ticks above the prior monthΆs intraday low on July 1.
Open interest coming into Thursday had fallen 14,867 lots from a week earlier to 182,322, with DecemberΆs — where the bulk of the spec-fund camp is concentrated — down 16,618 to 135,813. Certificated stocks fell 13,660 bales to 23,471 bales. There were 4,225 bales awaiting review.
Cash grower-to-business sales skidded to 476 bales on The Seam from 1,986 bales the previous week. Prices slid to an average of 78.67 cents from 81.77 cents, reflecting a decline to 24.20 cents from 28.13 cents in premiums over loan repayment rates.
The market ticked downward after U.S. weekly export sales came in below expectations for a week in which December lost 9.7 percent.
Net all-cotton sales for 2013-14 fell to 79,000 running bales during the week ended Aug. 22 from 91,800 bales the previous week, USDA reported.
Upland sales of 68,800 bales, down from 81,000 bales, were primarily for Turkey, Vietnam, South Korea, Peru and Thailand. Gross sales rose to 120,100 bales and cancellations to 51,300 bales, including 17,800 bales by Japan and 17,700 by China.
All-cotton shipments declined to 201,000 bales from 251,700 bales, with upland shipments dropping to 189,200 bales from 240,500 bales. Upland shipments were mainly to China, Mexico, Turkey, Vietnam and Taiwan.
Commitments reached 3.573 million bales, about 35 percent of the USDA forecast and 994,000 bales below bookings a year ago, while shipments for the season of 774,300 bales were up 265,100 bales on the year and nearly 8 percent of the estimate.
To reach the estimate, sales and shipments need to average roughly 139,800 and 198,100 running bales a week, respectively.
On the crop scene, U.S. conditions improved the second week in a row as of Sunday, Aug. 25, with good to excellent up a percentage point to 47 percent and poor to very poor down three points to 20 percent.
The DTN cotton condition index increased to 107 from 98 the previous week and 87 a year ago.
Good to excellent cotton in Texas held at 35 percent, fair rose five points to 36 percent and poor to very poor fell five points to 29 percent. In Georgia, good-excellent cotton declined four points to 46 percent and poor-very poor increased four points to 18 percent.
Cotton setting bolls expanded five points to 90 percent, behind 96 percent a year ago and the five-year average of 93 percent, while boll opening edged up two points to 10 percent, behind 23 percent and 20 percent, respectively.
Harvesting in Texas edged up to 4 percent off the stalk, down from 7 percent last year and 9 percent on average. Growers finalized harvesting in some Rio Grande Valley counties. Per-acre yields averaged about 3¼ bales off irrigated fields and three-fourths of a bale off dryland cotton.
Looking ahead, National Cotton Council economists expect net U.S. retail consumption of all fibers to increase to 46.9 million-bale-equivalents in 2013 from 44.8 million in calendar 2012.
At the market share it held last year, cottonΆs net domestic consumption is projected to rise to 17.8 million bales this year from 17 million, according to an updated NCC outlook report.
This refers to both the cotton spun in this country (mill use) and the larger amount consumed through textile imports. CottonΆs share last year declined about 1.4 percent to 38 percent.
While itΆs important that the retail market continue to grow, cotton must be concerned with its share and the competition from manmade fibers. And its share has declined the last few years.
In 2002, cottonΆs share was just over 43 percent. The higher prices of 2003 were met with some shifting from cotton to other fibers. As a result, cottonΆs share dipped.
But the share climbed back to 43.1 percent in 2006, remained roughly unchanged in 2007 and reached 44 percent in 2008. Then it fell to just over 43 percent in 2009, to 42.6 percent in 2010 and 39.5 percent in 2011.
Council economists estimated that 27.2 percent of all cotton goods imported in 2012 contained U.S. cotton, a 1 percent decrease from the prior year. The imported goods contained 4.7 million-bale-equivalents of cotton. This is attributed, in large part, to trading partners in the North American Free Trade Agreement and the Caribbean Basin Initiative.
Meanwhile, trend-following funds bought a net 2,916 lots in futures-options combined during the week ended Aug. 20 to boost their net longs 3.8 percent to 78,955 lots, according to traders-commitments data from the Commodity Futures Trading Commission.
Futures locked limit down much of that day and many trapped longs couldnΆt get out, resulting in a relatively modest cut in open interest of 4,391 lots. Then open interest fell 19,221 lots in two sessions, indicating additional long liquidation as prices declined.
Index funds sold 527 lots during to shave their net longs to 75,432, while traders with non-reportable positions sold 951 lots to reduce theirs to 11,222 lots. Commercials sold a net 1,439 lots, adding 1,806 shorts along with 367 longs to raise their net shorts to 165,614 lots.