The most prevalent news disseminated this week, of course, was the official announcement from the CNCRC in China that reserve auctions would be held for the remainder of this MY, as reserve purchases also continue, at a price near the equivalent of $1.34/lb for the reserve base grade.
Approximately 59% (56K statistical bales) was the off-take of the first stocks, reportedly from 2011, that were offered for sale on Thursday. While this does not exactly signify that mills in China are desperate for cotton, it is markedly higher than was off-take of initial offerings last season.
The Commitments of Traders report from the CFTC showed that large speculative funds and holders of non-reportable positions, combined, had further reduced their futures long position to effectively net flat, but to technically a small net short. This was, most probably, done in anticipation (or trepidation) of the official reserve release announcement from the CNCRC.
Also, this week, the US crop was estimated to be 78% harvested as of Nov 21, but harvest delays were encountered this week due to largely unexpected heavy snowfall over the Lubbock area last weekend, and heavy rains over the SE US.
The export report for the week-ending Nov 21 was on par with our expectations – although little was hear from the trade – given calculable futures prices, basis and exchange rates. FridayΆs net total of new sales brings the running 7-week total to 2.16M statistical bales, and we think it is a foregone conclusion that the USDA will raise its US export projection from 300K – 600K RBs on the Dec 10 WASDE release.
On-call sales for the week-ending Nov 22 increased approximately 3.5% from the previous week, when discounting fixations against Dec 13, which should be somewhat supportive going forward.
Looking forward to next week, perhaps the largest factor will be off-take of CNCRC reserve offerings. The export report should be a bit shorter due to the holiday-shortened sales period as well as higher futures prices. Toward the end of the week we may see some traders begin preparing for the Dec 10 WASDE release, which we think, at this time, will feature reduced world and US ending stocks projections.
Concerning the US, our proprietary analyses suggests that total US production should be projected at 150K – 250K statistical bales lower, if no significant upward harvested acreage adjustment is made, than the USDAΆs latest estimate of 13.1M bales.
USDA-RMA crop insurance data currently suggests that planted acreage will not fluctuate a great deal from the Sept estimate. Such a reduction in US production, combined with a 300K – 600K bale increase in the export projection could take the US ending stock figure for this MY to near the 2.5M statistical bale mark, which, we think, would be very supportive Dec 14 as planting season approaches.
Technically, we expect a bit more volatility this week and directionally, although the pure technical analysis says north, we will say south – partly due to the latest reported net speculative position and how Mar 14 fared in the post-settlement period today.
For the week, our bias is downward with a trading range of 76.50 – 80.00 on the inside and 75.50 – 81.00 on the outside.
Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com.