By Duane Howell
For A-J Media
A late rally off 16-week lows, supported partly by a sharp cut in stocks in deliverable position, still left U.S. cotton futures in the red last week.
Spot March dropped 73 points for the week ended Thursday to close at 61.36 cents. It bounced off the low earlier in the session of 60.67 cents, its lowest intraday price since Oct. 5, but still finished around the lower third of the weekΆs 208-point range.
May fell 55 points to settle at 61.91 cents, July slid 33 points to 62.52 cents and December slipped 48 points to 61.88 cents. The inverted intercrop July-December straddle thus widened 15 points to 64 points.
Cash online grower sales declined to 39,097 bales from 63,033 bales on The Seam. Prices averaged 56.34 cents, down from 57.41 cents, with premiums over loan repayment rates falling to 9.91 cents from 10.38 cents. Daily price averages ranged from 54.39 to 57.26 cents.
The average of the five lowest-priced world growths quoted for the Far East dipped 12 points to 66.64 cents, according to USDA calculations, while the lowest priced U.S. cotton landed there dropped 35 points to 70.30 cents. The U.S. premium thus narrowed 23 points to 3.66 cents.
Taking into account transportation and quality differentials, the adjusted world price fell to 46.89 cents from 47.01 cents, resulting in the marketing loan gain for the program week ending Thursday rising to 5.11 cents from 4.99 cents.
Decertification of 25,359 bales reduced stocks in deliverable position to 32,037 bales. This is down from 64,340 bales coming into the month and 57,425 bales a year ago. The decline was viewed as underscoring the tight availability of higher-quality cotton.
The U.S. No. 2 contract — basis color grade 41 or strict low middling staple 34 or 11/16 inches — doesnΆt necessarily represent the premium quality segment, a trade analyst said in a note recently.
Color grades as low as low middling and middling light spotted are allowed to be delivered, he pointed out, along with staple lengths as short as 11/32 inches.
The latest weekly recap on the distribution of qualities showed Monday that middling and higher grades with staples 11/8 inches and longer accounted for fewer than 3,000 bales of cert stocks then totaling 58,627 bales. Staples 11/32 and 11/16 inches totaled 38,783 bales.
Thus far the tightness of higher qualities has been reflected mainly in the strong premium basis, with the overall market concerned about the overhanging threat of Chinese reserves and a tough macro environment.
On the Washington scene, the National Cotton Council and 37 other agricultural groups have voiced concerns about Environmental Protection Agency actions in a letter to House Agriculture Committee Chairman Mike Conaway, R-Midland, and Ranking Member Collin Peterson, D-Minn.
The groups sent the letter prior to an oversight hearing that had been scheduled for Tuesday but was canceled because of the massive winter storm that hit the Washington, D.C., area.
The letter pointed to overarching concerns about EPAΆs general conduct, citing an outdated rulemaking process itself and agency policies where process infringements have affected agriculture.
Issues needing review, the groups say, include those pertaining to the waters of the U.S. rule, worker protection standards, permits for pesticide applications, water quality regulations, loss of important crop protection tools, spill prevention rules for farms and the Clean Air Act.
The agriculture community has become more and more concerned over the past year about trends within EPA that may make it increasingly difficult for farmers to obtain vital crop protection tools.
Separately, the Cotton Council has sent comments to EPA opposing most of an extensive set of proposed changes for the certification of pesticide applicators published in August. The comment period was extended at the request of many agricultural groups and expired Jan. 22.
The EPA noted the certification regulation hasnΆt been updated in almost 40 years and states have adopted procedures that vary widely.
Proposed changes include expanding training, standardizing continuing education requirements, making recertification intervals and standards uniform, increasing categories and application methods subject to regulation and expanding competency verification, to name a few.
The NCC said the EPA provided no justification nor demonstrated any deficiencies in the current process. The proposed changes, the council added, would add tremendous cost and burden on state budgets because state regulatory agencies would be tasked with the training and enforcement.
On the U.S. crop scene, upland classing slowed to 250,133 running bales during the week ended Thursday from 331,417 the prior week, according to figures from USDAΆs Agricultural Marketing Service.
Tenderable cotton fell to 49.6 percent from 50.1 percent and totaled 55.6 percent of 11.473 million RB classed for the season. A year ago, USDA had classed 14.393 million RB and tenderable cotton amounted to 69.5 percent. Ninety-five percent of the estimated 2015 crop had been classed.
Classing of 12,568 RB of Pima boosted the total for the season to 405,154 RB, down from 503,635 RB a year ago. All-cotton classing of 11.878 million RB compared with the year-ago total of 15.204 million RB.
Meanwhile, trend-following funds raised their net longs by 6,326 lots to 22,806 in cotton futures-options combined during the week ended Jan. 19, according to government traders-commitments data.
This followed four consecutive weeks of reducing their net longs, which had dropped to the smallest since Sept. 29. They added 5,988 longs and covered 339 shorts in the latest reporting week, while index funds trimmed their net longs by 2,567 lots to 57,793. Nonreportable traders cut their net shorts by 505 lots to only 129.
Commercials boosted their net shorts by 4,266 lots to 80,649, adding 4,837 shorts along with 571 longs.
In futures only, noncommercials upped their net long position by 1.1 percentage points to 20.9 percent of the rising open interest. They bought a net 3,252 lots, adding 3,399 longs along with 147 shorts.
