By Duane Howell
For the Avalanche-Journal

A surge to a new all-time high in world ending stocks as the U.S. carryout rose unexpectedly pressured cotton futures last week.

Spot December lost 138 points for the week ended Thursday to close at 70.71 cents. This was its lowest close since Sept. 28 when it finished at 70.65 cents, lowest since settling at 70.56 cents on Aug. 1.

December at its low of 70.41 cents ­— hit right after release of USDAΆs supply-demand estimates — held just above the bottom of a continuation chart gap to 70.49 cents left by expiration of the thinly traded October contract on Tuesday.

Cash grower-to-business trading increased to 8,045 bales on The Seam from 5,968 bales the previous week. Prices edged up to an average of 65.99 cents from 65.16 cents, reflecting a slight 30-point gain to 12.72 cents in premiums over loan repayment rates. Daily price averages ranged from 62.86 to 71.17 cents.

Sharp gains in grains and soybeans, further solidifying prospects for steep cuts in cotton plantings, contributed to support along with large unfixed on-call December sales. Insulation from the market of stocks in ChinaΆs strategic reserve also may have helped to cushion the fall. Beijing suspended sales Sept. 29 as new-crop cotton became available.

A slight 180,000-bale boost from a month ago to 17.287 million bales in the U.S. crop estimate reflected mainly higher output in the Mid-South.

The USDA left estimated planted and harvest acres unchanged at 12.36 million and 10.44 million, respectively, an abandonment of 1.92 million acres or 15.5 percent. Yields rose by nine pounds to 795 pounds, up five pounds from the prior year but down 22 pounds from the five-year average.

Upland production prospects fell to 16.63 million bales and Pima or extra long staple output was unchanged at 657,000 bales. The upland estimates for Texas and Georgia, the two largest cotton-producing states, were unchanged at 6.1 million and 2.5 million bales, respectively.

By regions, upland production increased 30,000 bales to 5.155 million in the Southeast and 160,000 bales to 3.96 million in the Mid-South, partly offset by reductions of 2,000 bales to 6.315 million in the Southwest and 10,000 bales to 1.24 million in the West.

The bigger crop and a 200,000-bale cut in exports to 11.6 million resulted in a 300,000-bale hike in ending stocks to 5.6 million, up from 3.35 million a year ago. The stocks-to-use ratio rose to 37.3 percent from 34.9 percent foreseen in September and 22.3 percent in 2011-12.

The USDA pegged production on the Texas High Plains at 3.96 million bales, down 390,000 bales from the previous report by districts in August but up from the drought-stricken output of 1.835 million bales in 2011-12. Industry estimates have ranged mostly around 3.5 million bales and lower.

U.S. upland cotton ginned prior to Oct. 1 totaled 1,557,950 bales, down 10.1 percent from a year ago and 31.8 percent from two years ago.

Globally, ending stocks swelled 2.59 million bales to 79.11 million, a whopping 74 percent of mill use, on sharply higher production, up by 2.29 million bales to 116.32 million, and lower consumption, down by 680,000 bales to 106.87 million.

Crop prospects grew mainly in India, China, Brazil, Pakistan and the United States. Consumption fell 2 million bales to 36 million in China. The high domestic support price there continues to erode offtake.

However, about three-fourths of the mill use cut in China is offset by higher use in other countries with access to lower cost raw material, including India, Turkey, Pakistan, Indonesia, Taiwan and Vietnam.

World trade fell marginally as a million-bale cut to 11 million in ChinaΆs imports was largely offset by increases in other countries.

Ending stocks in China climbed 1.1 million bales to 36.61 million, up 6.43 million from the previous year. ChinaΆs stocks account for about 46 percent of the projected world carryout and about 67 percent of the growth in global stocks from the prior year.

In other words, say USDA analysts, the huge proportion of the buildup in global stocks that has occurred in China is in response to government policy to support prices by rebuilding reserves.

Because China is the worldΆs largest importer, the policy can affect global prices in several ways. For example, purchase of excess domestic cotton or expanding imports to build reserves takes supplies off the market and supports world prices.

Alternatively, China can depress world prices by releasing reserve stocks onto the domestic market, which would reduce import demand and cause a larger accumulation of stocks in the rest of the world. However, some industry analysts say, release of reserve stocks in enough volume to cap a price advance or depress prices would seem likely only at higher levels.

After ChinaΆs stocks reached a 20-year low in 2010-11, caused by sharply expanding consumption, China revised its price support policy to producers, USDA analysts say.

Lack of transparency regarding import quotas and release of reserves has contributed to uncertainty in the global market, raising transaction risks for merchants and spinners.

Meanwhile, strong commercial buying reported by the Commodity Futures Trading Commission for the week ended Oct. 2 surprised many in front of a growing influx new-crop supplies.

Commercials bought 14,899 lots in futures-options combined to cut their net shorts 20 percent to 59,002 lots. They covered 11,576 shorts and added 3,323 longs.

Trend-following funds sold 13,605 lots to reverse to net short 3,556 lots from net long 10,049 lots. Index funds bought a net 25 lots to nudge their net longs up to 63,815, while traders with non-reportable positions sold 1,319 lots to reverse to net short 1,258 lots from net long 62 lots.

Some had expected commercials to have been net sellers by now and wondered if this hedge selling is still ahead. Or, some also wondered, is a big movement into the loan program ahead unless prices rise.