By Duane Howell

Short-covering as speculative long liquidation slackened has helped cotton futures to rally from a three-month-plus low in mostly thin volume.

Benchmark December gained 245 points for the week ended Thursday to close at 84.75 cents, its highest finish since Aug. 26. It closed 264 points above the lowest intraday print a week earlier since June 3. March rose 254 points to 84.43 cents.

December has closed higher four last five sessions, settling above its nine-day moving average on Monday for the first time since Aug. 19 and then above its 18-day average on Thursday. A 50 percent retracement from the August high of 93.72 to the September low of 82.11 would be 87.92.

A continued decline in open interest as prices rose the first two sessions of the reporting period indicated shorts were covering and long liquidation may have been completed. Then open interest Tuesday snapped a string of 14 consecutive declines, and a subsequent increase accompanied by rising prices suggested new longs may have entered the market.

Cash grower-to-business sales dipped to 1,976 bales on The Seam from the prior weekΆs 2,120 bales. Prices edged up to an average of 79.50 cents from 79.11 cents as premiums over loan repayment rates eased to 25.91 cents from 26.03 cents. Daily price averages ranged from 77.50 to 79.85 cents.

Traders positioned for ThursdayΆs USDA supply-demand data construed as painting a neutral to friendly U.S. outlook and a bearish world tint.

U.S. crop prospects dropped 150,000 bales from a month ago to 12.9 million bales, while beginning stocks rose 100,000 bales to 3.9 million on revisions in the 2012-13 carryout, domestic mill use remained at 3.5 million bales and exports fell 200,000 bales to 10.4 million.

Reduced export prospects were attributed to a smaller crop and increased competition for market share, mainly from India.

Ending stocks rose by 100,000 bales to 2.9 million, down a million bales from 2012-13 and still a relatively tight 20.9 percent of offtake, against 19.9 percent foreseen last month 23.6 percent last season.

Globally, production climbed 1.04 million bales to 117.42 million, consumption eased 320,000 bales to 109.53 million and ending stocks increased 960,000 bales to a new all-time high of 94.73 million.

The balance sheet for China was largely unchanged this month, based on current reserve, purchase, release and import quota policies announced for 2013-14. The rest-of-the-world stocks outside China expanded 910,000 bales to 36.42 million, up 740,000 bales from 2012-13.

Earlier, net U.S. all-cotton export sales for shipment this season slipped to 150,400 running bales during the week ended Sept. 5 from 173,300 bales the prior week, USDA reported.

Upland sales of 134,400 bales, down from 163,300 bales, reflected gross sales of 136,500 bales and cancellations of 2,100 bales. Buying destinations included China with 57,100 bales or 43 percent, followed by Turkey, Peru, Thailand and Mexico.

All-cotton shipments edged up to 131,200 bales from 128,100 bales. Upland shipments of 123,500 bales, up from 114,300 bales, went primarily to Vietnam, China, Mexico, Turkey and Indonesia.

On the international scene, government procurement of 2013-14 production has begun in China as part of the temporary stockpiling program, the National Development and Reform Commission said in a notice.

The commission earlier announced that the government support purchase price would remain at 20,400 yuan per metric ton (about $3,300 or the equivalent of $1.50 per pound) for domestic cotton for 2013-14.

Revisions in ChinaΆs controversial cotton policy are expected to be announced next year for the 2014-15 marketing year.

Elsewhere, India has deferred a decision on a plan to slap a 10 percent duty on cotton exports. The proposal was intended to boost export sales of value-added textiles to take advantage of a weak rupee and help reduce a growing current account deficit.

On the U.S. crop scene, conditions improved a bit during the week ended Sunday, Sept. 8, with good to excellent holding steady at 45 percent, fair edging up two percentage points to 34 percent and poor to very poor dropping two points to 21 percent.

The DTN cotton condition index edged up 101 from 99 the previous week and 80 a year ago but was down from 106 as of Aug. 4.

Ratings rose in Alabama, Arkansas, Kansas, Louisiana and Texas; declined in Georgia, Mississippi, Missouri, the Carolinas, Oklahoma and South Carolina; and were steady elsewhere.

Boll opening expanded eight points to 24 percent, behind 45 percent a year ago and 40 percent for the five-year average. The Texas harvest crept up two points to 8 percent off the stalk, compared with 9 percent last year and 12 percent on average.

On fiber competition, 2013-14 likely will be the fifth consecutive season in which cotton prices will be substantially above polyester prices in China, says the International Cotton Advisory Committee.

The Cotlook A Index of world prices and the price of polyester in China were essentially equal during most of the 2000s. But those price indices diverged in 2009-10. Last month, the A Index averaged about 93 cents per pound, while polyester in China averaged around 76 cents.

“This is a substantial difference in a high-volume, low-margin business like yarn spinning,” ICAC said in a monthly report, “and thus cotton is expected to continue to lose market share this season.”

The ICAC forecast an average A Index at 103 cents in 2013-14, down from 108 cents foreseen last month but up from 88 cents last season.

Meanwhile, trend-following funds sold 13,093 lots in U.S. cotton futures-options combined during the week ended Sept. 3 to reduce their net long position 23.9 percent to 41,641 lots, government data showed.

Index funds sold 734 lots to cut their net longs to 74,818 lots, while small traders sold 2,078 lots to reduce theirs to 6,672 lots. Commercials bought 15,905 lots, covering 10,591 shorts and adding 5,314 longs to shave their net shorts to 123,133.