Weekly Cotton Comments 11/25 05:11
Cotton Ends Lower for Short Marketing Week
Most-active March lost 2.8%. U.S. cotton 79% harvested; upland crop 47%
classed and 83.5% tenderable. Hedge funds bought 3,269 lots to chop their net
shorts just prior to a false upside breakout. Plunge in China's yarn imports
signaled slowing global cotton consumption. Winter storm warning issued for
Texas High Plains.
DTN Contributing Cotton Analyst
Cotton futures lost additional ground during the holiday-abbreviated
marketing week ended Thursday, with most active-March finishing down 238 points
or 2.79% to 82.90 cents and maturing December down 310 points or 3.56% to 83.94
March bounced off a low of 79.30 on Tuesday, its lowest intraday print since
Nov. 3, to close in the upper half of its 590-point trading range after
touching the high last Friday at 85.90 cents. It traded Wednesday on an
inside-day range. Both December and March ended down the 400-point limit on
Monday. No delivery notices were posted on December's first notice day on
The inverted March-May spread narrowed 19 points to settle at 70, while the
intercrop July-December inversion narrowed 81 points to 331. Red December lost
124 points to close at 77.93 cents, trading from a high of 78.96 cents last
Friday to a low of 75.81 cents on Monday.
Volume for the four-day period slowed to an estimated average of 30,327 lots
per session from 46,466 lots the prior week. Open interest declined 4,165 lots
to 191,947, with December down 13,074 lots to 703, March up 5,100 lots to
104,521, May up 2,881 lots to 31,232, July up 238 lots to 28,065 and December
2023 up 676 lots to 22,164. Certificated stocks grew 8,021 bales to 8,901.
In outside markets, U.S. stocks edged higher for the day as Federal Reserve
meeting minutes indicated the central bank is considering making smaller rate
hikes in coming months as inflation cools. The Dow Jones Industrial Average
rose 95.96 points or 0.28% for the session to close at 35,194,06, the S&P 500
gained 0.59% to 4,027.26 and the Nasdaq Composite increased 0.99% to 11,285.32.
A weaker U.S. dollar and higher grains offered support.
On the competitive front, the average of the five lowest-priced world
growths for the Far East fell 314 points for the four-day period to 99.56
cents, while the lowest-priced U.S. growth landed there dropped 364 points to
99.81 cents. The U.S. premium thus narrowed 50 points to 25. The adjusted world
price fell to 74.64.
Coming into Wednesday, the Cotlook A Index of world values had plunged 730
points from the prior marketing week close to 98.25 cents, widening the
international basis 29 points to 17.30 cents over the prior-day spot December
close and narrowing 11 ticks to 18.67 cents over March.
On the U.S. crop scene, cotton harvesting advanced eight percentage points
to 79% completed during the week ended Sunday, up five points from last year
and eight points above the five-year average, according to USDA's progress
Harvesting was completed in Arkansas and Louisiana and was within two points
of completion in Mississippi and three points in Missouri. Seventy-one percent
of the Texas crop was off the stalk along with 79% in Georgia, both of which
were up seven points from their state averages.
Only Arizona of the 15 reporting cotton states lagged the five-year average
pace. Producers there had picked 59%, six points below average.
Much of Texas received from trace amounts to 2 inches of precipitation, with
some areas getting as much as 3 inches. The cotton harvest had been completed
across much of the Lone Star State, though samples for grading continued to
trickle into the Corpus Christi classing office from the Coastal Bend, Upper
Coast, and the Rio Grande Valley. Most came from the Blacklands and Winter
Dry, windy conditions prevailed in the southern High Plains, while snow
flurries and light, intermittent moisture slowed stripper harvesting in the
northern territory. Many producers were finished and others worked diligently
into nighttime to get the crop off the stalk as soon as possible.
U.S. upland classing rose to 1.121 million running bales during the week
ended Nov. 18 to bring the total for the season to 6.249 million RB, up some
196,000 RB from a year ago, according to an Agricultural Marketing Service
Tenderable cotton accounted for 86.8% for the week and 83.5% for the season,
compared with 86.4% and 85.4%, respectively, last year. About 47% of the
RB-converted upland crop estimate has been classed, up from 36% of the final
2021-22 output at the corresponding point last season.
On the money-flow front, trend-following hedge funds bought 3,269 lots to
cut their net shorts to 13,337 in cotton futures-options combined during the
week ended Nov. 15. They covered 1,849 shorts and added 1,420 longs, according
to the latest traders-commitments data reported by the Commodity Futures
Index funds bought 2,866 lots to lift their net longs to 71,721, while
non-reportable traders -- predominantly small speculators -- bought a net 372
lots to nudge their newly-established net longs up to 2,288 on the covering of
1,110 shorts and the liquidation of 738 longs.
Commercials sold a net 6,508 lots, liquidating 34,237 longs and covering
27,729 shorts to raise their net shorts to 60,632. Their net shorts increased
7.1 percentage points to 22.7% of the combined open interest.
Prices ranged from 84.19 to 89.28 cents in December and from 82.57 and 87.62
cents in March during the reporting week just before hitting highs of 91.85 and
89.92 cents, respectively, the next day enroute to reversing and finishing that
session (Nov. 16) lower in a false breakout. Combined OI dropped 79,534 lots to
a delta-adjusted 267,305.
On the international scene, China's cotton yarn imports plunged in the first
nine months of the calendar year, falling by nearly half from the corresponding
period last year, according to a report this month by USDA's Foreign
The decline is the equivalent of roughly 3.5 million bales of cotton lint
and is the lowest level in more than a decade. Lower yarn imports and domestic
cotton consumption have been driven in part by domestic Covid lockdowns,
foreign trade policies barring imports of China's cotton products and slowing
global demand for apparel. Domestic apparel sales and cotton product exports
each fell 5% in January-September from the prior year.
China is by far the largest cotton importer and thus a major driver of
global cotton lint consumption. China's spinning mills don't produce enough
yarn for production of fabric that ultimately is cut and sewn into apparel, and
therefore the gap in yarn supply is supplemented by imports.
The decline in China yarn imports has contributed to lower cotton
consumption in major yarn exporting countries, including India, Vietnam,
Pakistan, and Uzbekistan. China was the largest foreign market for each major
yarn importer last year.
A subsequent wire report said China's cotton imports last month jumped to
more than double those of a year ago. But China's U.S. imports for the
marketing year through Nov. 10 still were down 28% from a year ago at 2.032
million statistical bales, according to FAS data. China accounted for 22% of
U.S. 2022 MY exports, compared with 30% a year ago when its U.S. imports were
2.807 million bales.
China yarn imports have been a recent bellwether for global cotton
consumption growth, and plummeting cotton import demand has helped to pressure
2022-23 world cotton use. The USDA projects world cotton lint consumption at
114.9 million bales, down 2.4 million bales from last year and 8.2 million
bales below two years ago. And still some knowledgeable world cotton watchers
consider that projection overstated.
On the weather scene, a winter storm warning is in effect for western areas
of the High Plains from midnight tonight until noon Saturday and a winter storm
watch for a northern-southern strip extending through the central area around
Periods of moderate to heavy rain and snow are forecast for the watch area
with snow accumulations of 4 to 7 inches. The largest snowfall is expected near
the Texas-New Mexico state line with chances for heavy rainfall increasing
eastward. Potential snow accumulations of up to 4 inches are seen for the watch
area in addition to moderate or heavy rain.
Meanwhile, a wind advisory was in effect Thursday for the northwestern
counties of Bailey, Castro and Parmer. Sustained, northerly winds of 25 to 35
mph with gusts to 55 mph expected.
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