By Duane Howell
For the Avalanche-Journal
Resilient cotton futures rebounded last week as money-printing clout and inflationary expectations overrode earlier forecasts for a new all-time high in world ending stocks.
Benchmark December, which had fallen the week before below a key support area around 74.60 cents on the bearish USDA supply-demand report, gained 169 points during the week ended Thursday to close at 75.22 cents.
December surged to its largest one-day advance in three months after the Federal Reserve announced an aggressive stimulus program that weakened the dollar and strengthened a number of commodities, including cotton.
It rallied from the prior weekΆs low of 72.75 to a high of 76.77 and then consolidated in the upper portion of its four-month, 1,288-point trading range from 64.61 to 77.49 cents.
The thinly traded nearby October contract enters its delivery notice period on Monday, but its tiny open interest — only 89 lots going into ThursdayΆs session would seem likely to minimize its market influence.
Looming is the question of crop quality and whether certificated stocks — now only 16,390 bales — can be replenished by first notice day for December deliveries in about nine weeks.
Cash trading increased to 14,942 bales from 5,118 bales the previous week on The SeamΆs grower-to-business exchange. Prices fell to an average of 68.14 cents from 69.09 cents as premiums over loan redemption rates held virtually unchanged at 15.62 cents, down two points.
The market showed little reaction to the second-largest U.S. weekly export sales of the marketing year. Net all-cotton sales for 2012-13 slowed to 211,300 running bales during the week ended Sept. 13 from 338,400 bales the previous week, which were the largest since June.
Commitments reached about 46 percent of the USDA forecast, compared with about 59 percent of final 2011-12 exports at the corresponding point last year. China has booked 2.321 million bales, 44 percent of the total.
All-cotton shipments climbed to 190,800 running bales from 128,200 bales, boosting the total for the season to 1.055 million to widen the lead over exports a year ago to 351,200 bales.
Shipments need to average something like 230,900 running bales a week to achieve the USDA forecast. About 20 percent of the commitments have been shipped, compared with about 11 percent a year ago when there were slugs of subsequent cancellations.
Data showing that manufacturing in China — the worldΆs largest cotton consumer and importer — contracted for the 11th consecutive month encouraged profit-taking to trim the futures advance as the week ended.
The preliminary HSBC China Manufacturing Purchasing Managers Index was 47.8 in September on a scale on which a reading below 50 indicates contraction. The final reading in August was 47.6.
Earlier, higher prices in China following news that Beijing will not issue any more import quotas this year and will suspend state reserve auction sales Saturday initially were somehow construed as supportive for U.S. futures.
ChinaΆs Zhengzhou cotton futures jumped on big volume that day, with benchmark January up 210 yuan or 1.08 percent to 19,765 yuan per metric ton, while the at-mill China Cotton Index rose 2 yuan to 18,639 yuan per ton or 133.18 cents per pound. Prices also were higher on the China National Cotton Exchange.
But while a lack of import quotas was bullish for ChinaΆs internal prices, it wouldnΆt seem a favorable thing for U.S. export demand.
Beijing last month issued an additional 400,000 metric tons (1.84 million bales) of processing trade import quotas under which textile manufacturers must export the products made with the cotton.
Mill use in China, which accounts for 35 percent of global consumption, is projected by USDA at 38 million bales in the marketing year that began Aug. 1, down 2.6 percent from the previous season. This would be ChinaΆs lowest mill use in nearly a decade.
ChinaΆs price support and national reserve policies continue to erode margins for its domestic cotton spinners, resulting in a loss of market share, analysts say. The policies are aimed at supporting producers.
On the U.S. crop scene, conditions improved during the week ended Sept. 16, with good to excellent up two percentage points to 43 percent, as the harvest edged up two points to 6 percent complete, down from 8 percent a year ago and 7 percent for the five-year average.
The weekly USDA report also showed cotton in fair condition dropped two points to 27 percent, while crops rated poor to very poor held unchanged at 30 percent. Cotton rated good to excellent was seven points below the 10-year average.
Conditions improved in Alabama, Arizona, California, Georgia, Kansas, Louisiana, Missouri, North Carolina and Texas; declined in Arkansas, Mississippi and Virginia; and held steady in Oklahoma, South Carolina and Tennessee. Good-excellent cotton in Texas and Georgia increased three points in both states to 25 percent and 59 percent, respectively.
The market will need to absorb selling of new-crop supplies, as the harvest, moving at the slowest pace since 2007, gains momentum, assuming producers donΆt lock up a big chunk in the loan.
Boll opening expanded seven points to 59 percent, six points behind a year ago and eight points behind the 2007-2011 average.
Meanwhile, hedge funds traded lightly on both sides of the market during the week ended Sept. 11, selling a net 256 lots in cotton futures-options combined, according to Commodity Futures Trading Commission data.
This trimmed their net long position 1.3 percent to 19,929 lots ahead of the USDA supply-demand report the next day. Index funds sold 3,015 lots to reduce their net longs to 62,523, while small traders with non-reportable positions bought 1,725 lots to raise theirs to 3,372 lots.
Commercials bought 1,544 lots — they covered 1,073 shorts and added 471 longs — to trim their net short position to 85,824 lots, which was 31.2 percent of the open interest, down 0.3 of a percentage point.
