By Duane Howell
For the Avalanche-Journal
Some speculative profit-taking on short-covering, international mill inquiries for physical supplies and low stocks in deliverable position have helped cotton futures to rally from an eight-week low.
Technically oriented selling after noncommercial traders had reversed to the short side had pounded the benchmark December contract through a 50 percent retracement (71.05 cents) of the move from the June low of 64.61 cents to the August high of 77.49 cents.
December, which has registered four consecutive calendar-week losses, gained a modest 56 points for the week ended Thursday to finish at 72.09 cents. It rallied from 70.22 cents on Monday, the lowest intraday price since Aug. 2, to a six-session high at 72.65 cents on Thursday, posting two straight closes back above its nine-day moving average.
Scale-down commercial buying helped to underpin the rally. Commercials have been covering shorts and adding longs.
Certificated stocks in deliverable position declined 4,844 bales to 9,072, down from 32,468 bales a year ago and the lowest since October 2010. Awaiting review were 450 bales.
Cash trading increased to 5,968 bales on The Seam from 2,983 bales the previous week. Prices gained 60 points to average 65.16 cents, with premiums over loan repayment rates rising to 12.42 cents from 11.53 cents. Daily price averages ranged from 60.46 to 72.70 cents.
Stronger-than-expected net U.S. all-cotton weekly export sales of 245,400 running bales for delivery this season offered support. Upland net sales of 238,400 bales, up from 130,500 the previous week, reflected gross sales of 264,600 bales and cancellations of 26,200 bales.
Commitments rose to 5.609 million running bales, 49 percent of the USDA forecast. China booked 114,800 bales of upland or 48 percent. It has continued to inquire for cotton, though its markets were on a weeklong holiday, and has accounted for 45 percent of the commitments.
All-cotton shipments of 202,600 running bales, up from 163,300 bales the previous week, boosted exports for the season to 1.421 million. This is 12 percent of the USDA forecast and 25 percent of the commitments, up from not quite 8 percent of final shipments at the corresponding point a year ago when exports were 12 percent of the bookings.
Contract defaults stemming from a surge in prices to all-time highs of $2.27 per pound in March last year and the subsequent collapse have continued to plague the cotton industry.
U.S. industry leaders met with senior government officials last month to discuss financial losses accruing in all industry segments as a result of massive defaults on export contracts. The delegation met with Secretary of Agriculture Tom Vilsack, U.S. Trade Representative Ron Kirk and Assistant Secretary of State William E. Craft Jr.
Contracts worth nearly $1 billion and covering sales of more than 4 million bales either are in default or are at risk of default with little sign of resolution, industry officials said.
The delegation included leaders of the National Cotton Council; American Cotton Shippers Association; Amcot, which represents four major cooperatives; and the National Council of Textile Organizations.
While the industry has worked to utilize the internationally recognized arbitration system, far too many foreign mills have failed to honor eventual awards, the group said in an NCC statement.
In many cases, the host governments appear to be protecting the foreign mills from enforcement awards, a concern exacerbated in cases in which the mills themselves are state owned, the NCC said.
“The defaults are threatening the ability and willingness of cooperatives and merchants to enter into forward contracts with producers, thereby reducing competition for cotton fiber and resulting in lower prices for farmers,” said Jimmy Dodson, a Texas cotton producer from Robstown and NCC vice chairman.
The delegation urged U.S. officials to pressure foreign government counterparts, emphasizing the crucial importance of contract sanctity as a cornerstone of international trade. Failure to enforce contracts will disrupt international trading relations and undermine support for future trade agreements, the group said.
Other commodities, such as grains and soybeans, which have seen recent record high prices, could be at similar risk in the future if the United States doesnΆt take a strong stand in defense of contract sanctity.
Industry spokesmen suggested using the leverage of trade preference discussions to impress on foreign government officials the importance of honoring contracts.
Textile mills in several countries — including Bangladesh, Indonesia, Thailand and Vietnam — have defaulted on millions of dollars of raw cotton contracts, said ACSA Chairman Ricky Clarke, a merchant with Cargill Cotton in Cordova, Tenn.
While extreme price volatility has subsided, contract defaults have become endemic. Long-term damage to the industry is feared unless the issue is resolved.
In international news, IndiaΆs Cotton Advisory Board estimated the 2012-13 crop at the equivalent of 26.09 million 480-pound bales, down 5.4 percent from last seasonΆs output but up from USDAΆs September projection of 24.5 million. The CAB forecast exports at 5.57 million statistical bales, down 46 percent from 2011-12 but up from USDAΆs 3.5 million.
With Indian mill demand remaining strong given greater demand from China for yarn, USDA expected exports to drop by a larger percentage on tighter supplies, increased domestic use and an uncertain export policy. Updated USDA supply-demand estimates will be released Thursday.
On the U.S. crop scene, weekly ratings dipped to the lowest of the season as harvesting advanced four percentage points to 14 percent complete, a point behind the five-year average. Good-excellent cotton fell a point to 42 percent and poor-very poor rose a point to 31 percent.
Heavy rains on open cotton in key areas of the belt have raised some concerns about quality and quantity. An unusually low 47.6 percent of the cotton classed through Sept. 27 met tenderable requirements, down from 55.2 percent of a larger volume graded a year ago.
