By Duane Howell

Updated U.S. 2013-14 supply-demand estimates yielded a “buy the rumor, sell the fact” reaction in cotton futures last week, with old-crop prices losing ground and new-crop values hitting a seven-month high.

Spot May fell 196 points for the week ended Thursday to close at 89.02 cents, its lowest finish since March 5, while December advanced 140 points to 80.84 cents, its highest settlement since October. July, now the lead month in open interest, fell 96 points to 90.29 cents.

Index funds continued rolling positions from May, selling May and buying July, ahead of the expiration of May options on April 11 and first notice day for May deliveries on April 24. May closed below its 50-day moving average.

The USDAΆs supply-demand report showed U.S. production fell 320,000 bales from the previous estimate to 12.87 million, based on March end-of-season ginning figures, and ending stocks dropped 300,000 bales to 2.5 million. Both had been widely expected.

The carryout is the smallest since 1990-91 and the second smallest since 1950-51, while the stocks-to-use ratio of 17.5 percent is the smallest since 2010-11 when it was 14.2 percent and the carryover was 2.6 million bales. Domestic mill use and exports were unchanged at 3.6 million and 10.7 million bales, respectively.

Prices at the farm level are forecast to average 76 to 79 cents for the marketing year, up a cent on both ends of the range, with the midpoint of 77.50 cents up from 72.50 cents last season.

Globally, production eased a marginal 60,000 bales to 116.62 million and mill use rose by 240,000 bales to 109.45 million. Ending stocks grew a slight 170,000 bales to a new all-time high 96.92 million, 88.6 percent of mill use. Beginning stocks rose by 490,000 bales to 89.65 million.

However, stocks outside China fell 830,000 bales to 38.11 million, down 1.18 million bales from a year earlier and a four-year low.

The report featured a million-bale increase to 12 million in imports by China, based on stronger-than-expected imports thus far and the likely release of new import quotas. However, ChinaΆs ending stocks also expanded a million bales to 58.81 million, 60.7 percent of the world carryout and more cotton to be sold at auction.

China, meanwhile, announced a higher-than-expected target price of 19,800 yuan per metric ton ($3,200 or about 145 cents per pound) for the 2014 crop in the Xinjiang pilot area, the largest cotton-producing region.

This would be expected to encourage production in that province, though recent surveys had indicated a decrease in intended plantings and a support program hasnΆt been announced for other areas that have accounted for around 40 percent of ChinaΆs cotton production.

Growers will sell at market prices. The government will pay growers a subsidy when their selling price is below the target. No payment will be made if the farm price is above the target level.

China announced earlier that it was ending its controversial cotton stockpiling program established in 2011. In general, the new cotton policy is believed likely overall to stimulate consumption of domestic cotton at the expense of imports.

China, the worldΆs largest cotton consumer and importer, is the largest import buyer of U.S. cotton. As of April 3, China had purchased 2.168 million running bales, or 23 percent, of U.S. 2013-14 export sales.

A decline of 10,200 running bales in U.S. all-cotton export commitments contributed to weakness in old-crop prices as cancellations of 68,800 RB exceeded sales of 58,600 during the week ended April 3. Commitments dipped to 9.542 million RB, still 92 percent of the estimate. A year ago, commitments were 93 percent of final exports.

Shipments rose to 311,700 RB from the prior weekΆs 263,300 RB and boosted exports for the season to 7.202 million RB, 69 percent of the forecast, against about 68 percent of 2012-13 exports at the corresponding point last season. Exports now need to average roughly 198,600 RB a week to reach the estimate.

Net new-crop sales of 119,800 RB lifted 2014-15 commitments to 1.346 million RB, up 46,000 RB from forward commitments a year ago. This marked the first time new-crop commitments have exceeded year-ago forward sales.

Looking ahead, IndiaΆs 2014-15 cotton production is forecast at 28 million 480-pound bales, down a million bales from this season, the U.S. agricultural attaché said in a report.

The projected cotton area of 11.8 million hectares (29.158 million acres) is the third highest on record. Yields are expected to drop closer to recent averages following the strong performance of the 2013 monsoon.

Consumption is expected to increase to 23.5 million bales as yarn exports and strong domestic demand steer cotton to IndiaΆs growing textile sector. Exports are forecast 25 percent lower at 6 million bales.

Exportable supplies are believed likely to compete more directly with domestic demand as supplies tighten in response to lower production. India ranks as the worldΆs second-largest cotton producer and consumer and second-largest exporter.

On the U.S. crop scene, planting was 6 percent complete as of April 6, up a percentage point from a year ago and even with the five-year average, USDA said in its first crop progress report of the season.

Separately, USDA said upland growers had contracted about 3 percent of their expected acres by March 31, down from 10 percent a year ago and the smallest percentage since 2009 when they had booked only 1 percent.

The estimate is based on the National Agricultural Statistics ServiceΆs March prospective plantings report and informal surveys by the cotton division of the Agricultural Marketing Service.

Growers reported upland planting intentions of 10.943 million acres, up 7.2 percent from last yearΆs 10.206 million acres.

Bookings totaled 9 percent in the Southeast, against 27 percent a year ago; 4 percent in the Mid-South, down from 14 percent; and a flat 1 percent in the Southwest. Contracting was inactive in the West.