By Duane Howell
Shallow rallies seem only to have offered new selling opportunities for speculators and funds as cotton futures remained in a deep downtrend.
Benchmark December lost 318 points, or 4.8 percent, for the week ended Thursday to close on another new contract low finish at 62.87 cents, shedding 1,064 points, or 14.5 percent, for the month. This was the third consecutive monthly loss, the longest slump since July 2011.
December posted a new intraday contract low at 62.32 cents, down a whopping 2,242 points, or 26.5 percent, from its May 8 high. It has closed on new contract low settlements three sessions in a row and five in the last six. Some battered longs bailed out.
Macro concerns, steep stock market losses and dollar gains against a basket of currencies may have contributed to pounding cotton as the month ended and the 2013-14 marketing year came to a close.
Cash grower sales resumed on The Seam as 1,677 bales changed hands on prices averaging 70.09 cents, reflecting premiums of 14.48 cents over loan repayment rates of 55.61 cents.
The market has focused primarily on the supply side of the balance sheet and shrugged off impressive U.S. new-crop export commitments to start the 2014-15 marketing year.
New-crop sales of 254,700 running bales during the week ended July 24, though down from 372,400 bales the prior week, boosted 2014-15 commitments to 3.603 million, widening the lead over forward sales a year ago by 205,000 bales to 1.307 million.
Commitments reached 36 percent of the USDA forecast, not counting unshipped sales from the 2013-14 marketing year to be rolled into the new marketing year. A year ago, forward commitments were 23 percent of the current 2013-14 estimate.
Old-crop sales of 5,700 running bales, up from net sales the prior week of 800 bales, nudged 2013-14 commitments to 10.81 million bales, 106 percent of the USDA estimate. Outstanding sales declined to 728,600 bales from 843,500 bales.
Shipments rose to 120,600 bales from 73,200 bales, hiking exports for the season to 10.081 million, 99 percent of the estimate. Roughly 104,000 running bales remained to be shipped to make the forecast.
On the U.S. crop scene, conditions improved during the week ended July 27, USDA reported, with good to excellent up two percentage points to 54 percent, fair down a point at 33 percent and poor to very poor also down a point to 13 percent.
A year ago, good to excellent was 45 percent, fair 1 percent and poor to very poor 22 percent. The DTN cotton conditions index rose to 135 from 132 a week earlier and 103 a year ago.
In Texas, good-excellent cotton gained two points to 39 percent and poor-very poor declined two points to 21 percent, much improved from the 32 percent in each category a year ago.
Squaring at 87 percent was even with a year ago and two points behind the five-year average, while cotton setting bolls at 49 percent was up 12 points and behind two points, respectively.
The crop could make 17.69 million bales, panelists estimated at the Ag Market NetworkΆs annual Cotton Roundtable at the International Cotton Exchange in New York City. This would be up from 16.5 million bales projected by USDA in July and 12.91 million bales harvested in 2013-14.
But Carl Anderson, Texas extension cotton economist emeritus, who said his current estimate for Texas is 7.6 million bales, also said that weather conditions between now and mid-October could swing the stateΆs production to anywhere from 7 million to 8.3 million bales. Texas produced 4.17 million bales of upland cotton in 2013.
The bear market has pushed unofficial forward adjusted world price (AWP) calculations to near the base loan rate. Official calculations for the AWP for the week beginning Aug. 8 are expected to transition to new-crop quotes, which averaged 72.74 cents for the week ended Thursday as figured by USDA.
The current 2013-14 transportation-quality adjustment of 19.69 cents if applied to that 2014-15 average would translate into an estimated new-crop AWP of 53.05 cents, against the base loan rate of 52 cents.
When the AWP falls below the loan rate, producers can repay loans at the AWP level. Or they can receive a loan deficiency payment, which is the difference between the higher loan rate and the lower AWP.
On the international scene, reports out of China said a series of special auctions of reserve stocks in Xinjiang, the main cotton-producing province, will begin on Tuesday. Sketchy details indicated 2013-14 upland cotton of more than 50,000 metric tons (229,600 bales) could be available. Auctions of reserve stocks are scheduled to end Aug. 29.
In other international news, planting in India has expanded rapidly to reach 8.146 million hectares (20.13 million acres) by July 25, according to a progress report by the Directorate of Cotton Development.
This was roughly 2.35 million hectares (5.81 million acres) less than a year ago but up more than 2.5 million (6.18 million acres) from just a week earlier. Rapid progress was reported in the major producing states of Gujarat and Maharashtra following beneficial monsoon rains.
Meanwhile, trend-following funds boosted their net short position by 1,660 lots to 7,391 in U.S. futures-options combined during the week ended July 22, according to government data.
This was their largest net short position since Nov. 13, 2011. Index funds reduced their net longs by 1,841 lots to 58,330, while traders with non-reportable positions trimmed their net shorts by 1,111 lots to 1,659.
Commercials bought a net 2,389 lots, reducing their net shorts to 49,280 lots by adding 4,773 longs along with 2,384 shorts. This was their smallest net short position since Dec. 20, 2011.
In futures only, non-commercials reversed to net short 0.6 percent of the rising open interest from net long 1.0 percent. This marked the first time non-commercials have been net short futures-only since November 2012.
