By Duane Howell

Long liquidation by funds and speculators drove cotton futures lower as technical weakness spurred selling and contributed to the July-December intercrop straddle reverting toward carry.

Pressure stemmed also from significant quickening of U.S. planting progress, forecasts for several days of rain on the dry Texas High Plains and worries about a slowing of Chinese manufacturing activity.

Spot July lost 425 points during the week ended Thursday, May 23, to close at 81.78 cents, its lowest finish since Jan. 28. It triggered sell stops when it took out the April low of 82.84 and settled just above the midpoint (81.62) of the rally from the November low (69.03) on the December 2012 contract to the March 15 high (94.20) on the July delivery.

Unless strong stoppers emerge for July deliveries, some analysts say, the contract may go to full carry, figured around 350 points for many shippers plus an additional 100 points for penalty or less desirable cotton in the certificated stocks. Deliverable stocks stood at 509,848 bales, among the largest since June 2010.

December dropped 169 points to settle at 83.64 cents, its lowest finish since May 1. It regained a premium to July on Tuesday, May 21, which widened to a closing difference Thursday of 186 points. July had commanded an intraday premium as wide as 525 points in mid-March.

Open interest coming into ThursdayΆs session had fallen 959 lots from a week earlier to 121,543 in July and had expanded 5,752 lots to 64,270 in December, suggesting some rolling of positions from the front delivery. The board total gained 5,992 lots to 190,462, suggesting new shorts entered the market as prices fell.

On the U.S. crop scene, planting advanced 16 percentage points — more than expected — to 39 percent done during the week ended Sunday, May 19, USDA said, 20 points behind last year and 13 points behind average.

Progress advanced by nine points to 29 percent planted in Texas and by 23 points to 46 percent in Georgia, behind the five-year state averages of 42 percent and 52 percent, respectively. Squaring in Texas at 3 percent trailed the average by three points.

Planting in the Delta jumped 41 points to 54 percent completed in Arkansas, 41 points to 70 percent in Louisiana, 16 points to 23 percent in Mississippi, 46 points to 58 percent in Missouri and 10 points to 13 percent in Tennessee.

U.S. all-cotton plantings are forecast at 10.241 million acres by Informa Economics, Memphis-based analytical firm, trade sources said.

This is up 215,000 acres from USDAΆs March intentions survey of 10.026 million but down from 12.314 million acres planted last year. Informa estimated upland plantings at 10.025 million acres, up from 9.82 million foreseen in the USDA survey.

With generally dry subsoil conditions, cotton on the Texas High Plains will need timely growing season rainfall to make a dryland crop, even if sufficient moisture is received to produce stands.

Only a small portion of the regionΆs dryland acreage had sufficient moisture coming into the week to get stands established. Many producers were planting their dryland acres anyway because of insurance regulations, hoping for rain to bring the crop up to stands.

Crop insurance planting deadlines for cotton range from May 31 to June 10 on the High Plains and are June 20 in the adjoining Rolling Plains below the Caprock.

Heat and continued drought — as expected by some forecasters through August following Memorial holiday rains — could put pressure on irrigation wells, most of which donΆt have enough capacity to keep up with summertime plant needs without supplemental rainfall.

On the demand scene, net all-cotton export sales for this season rose to 107,100 running bales for the week ended May 16 from 82,900 bales the prior week. Upland net sales of 101,700 bales, up 37 percent from the previous week but down 45 percent from the prior four-week average, reflected gross sales of 108,200 bales and cancellations of 6,500 bales.

All-cotton shipments dropped to 254,100 running bales from 330,400 bales the week before but still were above the average needed to reach the USDA estimate. Upland shipments of 232,900 bales were down 24 percent from the previous week and 28 percent from the prior four-week average.

Net sales for shipment next season fell to 36,400 running bales from 68,800 bales the previous week. This brought 2013-14 commitments to 1.646 million bales, 15 percent of the USDA projection.

In related news, a downbeat reading on Chinese manufacturing raised fresh questions about cotton demand in the worldΆs largest cotton consumer and importer.

The preliminary HSBC China Manufacturing Purchasing ManagersΆ Index fell to a seven-month low of 49.6 in May from a final 50.4 in April. A reading below 50 indicates that manufacturing activity contracted.

Separately, ChinaΆs April cotton imports fell 15 percent from a year earlier to 430,867 metric tons (1.98 million 480-pound bales), according to the General Administration of Customs. January-April imports fell 13.5 percent to 1.8 million tons (8.27 million bales).

The USDA earlier this month raised its estimate of ChinaΆs 2012-13 imports by 1.75 million bales from its April forecast to 18.25 million. ChinaΆs 2013-14 imports are forecast at 12 million bales, down 34 percent from 2012-13, as growing official reserve stocks — in defense of producer minimum support price — create less need for foreign cotton.

Meanwhile, trend-following funds bought 10,623 lots in futures-options combined during the week ended May 14 to boost their net longs by 22 percent to 60,145 lots, largest since April 9, government data showed.

These longs, concentrated in July, are believed to have contributed to the later liquidation pressure. Index funds bought a net 870 lots to raise their net longs to 76,827, while small traders bought 751 lots to hike theirs to 10,202.

Commercials sold a net 1,244 lots, adding 12,847 shorts along with 603 longs to bring their net shorts to 147,174 lots.