By Duane Howell
Switch trading remained lively in cotton futures last week as July surged to a five-week high, tumbled heavily and still finished higher, while December bounced from its lowest price since February but still closed in the red.
July, facing first notice day on Tuesday, gained 274 points for the week ended Thursday to close at 88.36 cents, just below the midpoint of its volatile 601-point range and down from the high of 91.43 cents.
December lost 70 points to close at 77.13 cents, just above the midpoint of its 185-point trading range down to 76.10 cents, its lowest intraday price since Feb. 3. Liquidation selling of the July-December spread on the July plunge likely contributed December support.
The intercrop spread traded from July premiums of 791 points to 1,479 points on what seemed a short squeeze and finished at 1,123 points. This and other spreads accounted for up to 57 percent of daily volumes averaging 29,237 lots, against an average for the year of 25,800 lots.
With three trading days left before first notice day going into ThursdayΆs session, JulyΆs open interest totaled 26,051 lots, down 33,414 lots from a week earlier. Certificated stocks were up 9,807 bales to 427,727, with 23,370 bales awaiting review.
Preparations for the July delivery period shared the spotlight with crop conditions and strong U.S. export sales.
All-cotton export sales for shipment this season of 155,200 running bales during the week ended June 12, up from 42,500 bales the prior week, boosted 2013-14 commitments to 10.668 million bales.
Commitments, down 2.696 million bales, or about 20 percent, from a year ago, reached about 105 percent of the USDA estimate, compared with around 106 percent of final shipments at the corresponding point last season.
Shipments slowed to 132,000 running bales from 189,700 bales the week before, with upland shipments of 119,800 bales down 35 percent from the previous week and 37 percent from the prior four-week average.
Shipments for the season of 9.347 million bales trailed exports a year ago by 2.315 million bales, or also by about 20 percent. Exports were about 92 percent of the USDA projection, also about the same as the percentage of final exports a year ago. To achieve the estimate, all-cotton shipments need to average roughly 139,700 running bales a week.
The USDA earlier this month raised its 2013-14 export estimate slightly to 10.5 million statistical 480-pound bales, down 2.5 million bales from last season largely because of limited supply.
Net all-cotton sales for shipment next season rose to 103,500 running bales from 74,700 bales the previous week, hiking 2014-15 commitments to 2.345 million bales.
New-crop bookings, up 343,000 bales, or about 17 percent, from forward sales last year, have reached about 25 percent of the projection. A year ago, forward sales were 20 percent of the current 2013-14 export estimate.
The USDA export forecast for 2014-15 of 9.7 million bales, down 800,000 bales, or about 8 percent, from this season, is viewed as conservative, especially if favorable U.S. crop prospects remain on track.
Despite larger U.S. supplies foreseen for next season, lower world trade — particularly imports by China — contributed to
USDAΆs lower export forecast. The U.S. share of 2014-15 global trade is projected at 27 percent, up slightly from 2013-14.
While U.S. exports are projected to decline next season, domestic mill use is expected to rise about 3 percent to 3.7 million bales. The textile industry remains very competitive, USDA analysts say, and increased capacity is expected to be in place in 2014-15.
On the U.S. crop scene, ratings improved slightly during the week ended June 15, with good to excellent up a percentage point from a week ago to 51 percent and poor to very poor down a point to 12 percent. Conditions a year ago were 42 percent good to excellent and 19 percent poor to very poor.
Cotton in Texas was 37 percent good to excellent, up from 35 percent a week earlier and 24 percent a year ago, and 19 percent poor to very poor, down from 22 percent and 31 percent, respectively.
U.S. planting reached 95 percent complete, up a point from a year ago and down a point from the five-year average. Growers in Texas had planted 93 percent, down a point from last year and two points behind average.
Squaring advanced six points to 14 percent, against 9 percent last year and 16 percent on average. In Texas, squaring edged up two points to 10 percent, even with last year behind the average of 13 percent.
On the international scene, ChinaΆs cotton imports last month of 191,500 metric tons, or about 879,500 bales, boosted the total for the season to 2.57 million tons, or about 11.8 million bales, according to preliminary data.
This indicated imports the last two months of the 2013-14 marketing year need to total roughly 1.7 million statistical bales, or approximately 850,000 bales per month, to reach the USDA estimate of 13.5 million.
ChinaΆs imports are projected to exceed the 11.81-milion-bale margin by which 2013-14 production in the rest of the world of 86.13 million bales tops mill use outside China of 74.32 million bales. The rest of the world surplus is expected to outstrip ChinaΆs imports in 2014-15.
Meanwhile, trend-following funds sold 9,996 lots in futures-options combined to reduce their net long position by 41.6 percent to 14,030 lots during the week ended June 10, according to government data.
This marked a new low in net longs for those funds since Dec. 10. Index funds sold 677 lots to pare their net longs to 62,110 lots and small traders sold 1,145 lots to cuts theirs to 1,148 lots.
Commercials bought a net 11,818 lots, covering 12,067 shorts and liquidating 249 longs to reduce their net shorts to 77,293. In futures only, non-commercials chopped their net longs by 8.1 points to 11.8 percent of the open interest.
