By Duane Howell

An inability to overcome hardened resistance at a new rally high as scale-down mill buying slackened set the stage for a selloff in cotton futures last week.

Benchmark December lost 304 points for the week ended Thursday to close at 65.05 cents, precisely even with its settlement on Sept. 8. It finished slightly below the midpoint (65.25) of its move from the contract low of 62.02 on Aug. 1 to the rally high of 68.48 cents on Sept. 12.

December lost 104 points of its premium to March, which settled down 200 points to 64.96 cents as the inversion tightened to nine ticks.

Cash grower-to-business sales quickened to 10,888 bales from 2,870 bales on The Seam. Prices rose to an average of 67.70 cents from 65.52 cents, reflecting gains of 57 points to 12.37 cents in premiums over loan repayment rates. Loan values averaged 55.33 cents, up from 53.72 cents.

The futures market retreated in the face of a constructive U.S. weekly export sales report. Net all-cotton sales of 80,000 running bales during the week ended Sept. 11, against net cancellations the prior week of 31,800 bales, boosted commitments to 5.169 million bales.

Though upland sales of 75,000 running bales were down 34 percent from the previous four-week average, export business picked up during a reporting week in which December futures closed higher four consecutive sessions and posted the highest settlement since July 14.

Commitments are 1.151 million running bales, or 29 percent, ahead of bookings a year ago and are 53 percent of the USDA export projection. A year ago, commitments were 39 percent of final shipments.

The USDA has projected 2014-15 exports at 10 million statistical 480-pound bales, down 530,000 bales, or 5 percent, from last season.

All-cotton shipments of 108,600 running bales, up from the prior weekΆs 85,100 bales, brought the total for the season to 607,900 bales, down from 1.162 million bales a year ago. Shipments have been hampered by the tight availability of uncommitted supplies.

To achieve the USDA estimate, shipments need to average roughly 197,700 running bales a week, while sales averaging around 98,700 bales would match the export projection.

Piecemeal details on ChinaΆs new target price program for producers in the main cotton-producing Xinjiang region were thought to have contributed to pressure on market sentiment. A subsidy payment will bridge the gap between the target price and an assessed market price.

The total amount to be paid by the central government will be determined by the volume of output and the difference between the target price (19,800 yuan per metric ton or 146.24 cents per pound at prevailing midmarket exchange rates) and the assessed market price.

ItΆs understood that the market price will be an average rate based on information collected from September through November. Growers apparently will get the same subsidy amount calculated from the same average market price.

Thus the higher the quality a grower can produce and the higher the price obtained, the higher will be that individualΆs total remuneration.

Some key details remained unknown or unclear, including what support, if any, would be provided to growers in provinces other than Xinjiang, which produced about 55 percent of ChinaΆs crop in 2013-14.

Uncertainties remained on import policy and the management of ChinaΆs huge government-owned stocks. Concerns about the disposition of those stocks have hammered world cotton prices and ChinaΆs internal prices.

The most-active January contract on ChinaΆs Zhengzhou cotton futures closed Thursday at 13,660 yuan, or 100.89 cents per pound, about 31 percent below the target price.

In a report on worldwide production and trade policies, the International Cotton Advisory Committee estimated that all types of cotton subsidies provided by the Chinese government totaled $5.1 billion in 2013-14, against $5.8 billion the prior year.

The secretariat used the difference between domestic and imported cotton prices as an estimate of the support to Chinese cotton prices resulting from government interventions.

The price differential between the China Cotton Index of mill-delivered cotton and an index of imported cotton arriving in Chinese main ports, adjusted to include the value added tax, port charges and transportation to mills, is used in the calculations.

Benefits or subsidies received by growers in China as a result of government interventions are estimated at $4.8 billion in 2013-14, or 32 cents per pound, compared with $5.5 billion, or 34 cents, in 2012-13.

In addition, the government pays growers a subsidy of about $150 million a year for using high-quality planting seeds, although small farmers donΆt significantly benefit from it.

During the past several seasons, China also provided subsidies estimated at $160 million per year for transportation of cotton from Xinjiang to mills in eastern and southern China.

On the U.S. crop scene, conditions declined slightly to a new low for the season in the week ended Sept. 14, with good to excellent unchanged at 49 percent and poor to very poor up a point to 18 percent.

The USDA ratings topped year-ago conditions of 43 percent good to excellent and 24 percent poor to very poor. The DTN cotton crop index declined to 119 from 121 a week earlier but was up from 94 a year ago.

In Texas, good to excellent cotton fell a point to 34 percent and poor to very poor rose two points to 27 percent. Harvesting of the Texas crop rose two points to 15 percent complete, up from 9 percent last year and 12 percent for the five-year average.

Boll opening advanced 12 points to 51 percent, up from 34 percent last year and 49 percent on average, while 6 percent of the U.S. crop was off the stalk, compared with 4 percent and 7 percent, respectively.

Meanwhile, managed money funds reversed to net long 2,574 lots from net short 4,200 lots in cotton futures-options combined during the week ended Sept. 9, according to disaggregated traders-commitments data.