Cotton prices got another surge of adrenalin to finish the week and charts show prices making a moon shot. However, risk is growing that China, which holds more than half of global stocks in “reserve”, is likely going to change that policy.

For the past two crop years, the Chinese reserve system prevented a collapse in world prices by serving as a major buyer. During the September to March purchasing period, nearly 90% (30.4 million bales) of the 2012/13 Chinese crop (35.0 million bales) was purchased.

In a series of recent conferences, Chinese officials indicated that Chinese cotton policy will be revised before the onset of the 2014/15 crop year. Comments indicated that the accumulation of stocks is unsustainable. Correspondingly, the cotton held in reserves may be more aggressively marketed to mills in the upcoming crop year, Chinese import demand may slow, which could push prices lower.

But for now, hold sales at current levels and let this rally run. ItΆs now feeding on itself, triggering buy stops by those unwise enough to try to “pick the top” and selling into this strength. WeΆre waiting for a clear technical “sell” signal on the charts before recommending further pricing. HereΆs the week in review:

Prior to MondayΆs August crop report, trade estimates for U.S. production averaged 13.7 million bales, up 200,000 from July; in a range from as low as 13.3 million to as high as 14.2 million. The actual figure came in at 13.05 million bales, well below the lowest of trade estimates and downright bullish. Prices leaped triple digits.

As for projected U.S. ending stocks of cotton, prior to release trade estimates averaged 3.1 million bales, up 200,000 from USDAΆs July estimate and in a range from as low as 2.8 million to as high as 3.6 million. The actual revised ending stocks estimate from USDA came in at 2.8 million, down 100,000 bales from last month and also the low end of trade expectations. (USDA cut projected starting stocks from the 2012/13 marketing year by 100,000 bales, but also cut anticipated exports for 2013/14 by 400,000 bales.) The new projected range for average farm price of cotton in 2013/14 is 72.0-88.0; narrowing at both ends from the July range of 70.0-90.0.

At the global level for cotton, USDA raised estimated beginning stocks by 770,000 bales, but trimmed estimated global production by 1.64 million bales and increased estimated global usage by 60,000 bales for a net reduction of 570,000 bales in projected global ending stocks.

This bullish news was followed Monday afternoon by the weekly crop progress and crop condition reports showing that the portion of the crop rated good-to-excellent had declined by 2 percentage points (to 43%) while the portion rated poor to very poor increased by 4 percentage points, to 35%. The portion “squaring” is at 97%, now on par with the 5-year average for this time of year.

But the portion setting bolls is at 73% compared to normal at 81% and therein lies a growing threat to production not confined to Texas – excessive rain, cloudy skies and cool temperatures that are interfering with normal boll set and maturation from the Delta to the Carolinas.