Cotton Rallies From New Low To Finish Holiday Week Ahead

A long-expected announcement of the resumption of sales from China’s huge national reserves has capped an eventful holiday-shortened trading week in cotton futures.



Traders also pondered the effects of a harvest-halting winter storm on the Texas High Plains, soaking rains in the Southeast and Delta and the apparent movement of December deliveries into strong commercial hands.



Most-active March advanced 121 points from its close on a new seasonal low on Friday, Nov. 22, to finish at 78.44 cents on Wednesday. Maturing December gained 154 points to close at 76.75 cents. Its last trading day is Friday, Dec. 6.



The market was closed Thursday in observance of Thanksgiving and was to have a delayed opening and early close on Friday.



March rallied two days in a row after finishing Friday, Nov. 22, with its fifth consecutive weekly loss, longest since June 2012, and at a price near that of a year ago. Then it gave back nearly 40 percent of the two-day closing gains but still finished above its 18-day moving average.



Cash grower-to-business sales climbed to a crop-year high for the second week in a row on The Seam, rising to 45,147 bales from 39,281 bales. Prices rose to an average of 74.14 cents from 73.21 cents, reflecting gains to 20.52 cents from 19.95 cents in premiums over loan repayment rates. Daily price averages ranged from 71.30 to 74.45 cents.



China was to begin its stockpile sales on Thursday, Nov. 28, and to continue the auctions through Aug. 31 on a minimum price of 18,000 yuan per metric ton for standard grade cotton. The price is equal to roughly $1.34 a pound.



The China National Cotton Reserves Corp. held daily auctions from January through July, but mills bought just 25 percent of the cotton offered because of the elevated price.



Concerns about quality arose on plans to sell 2011-crop cotton. Chinese mills have complained about the quality of stored cotton and loss of weight in storage.



New-crop cotton from India’s record output is expected to offer stiff competition. Chinese buyers have been reported importing Indian cotton for about 17,700 yuan per ton, including a 40 percent tariff.



Details appeared generally in line with trader expectations. There apparently won’t be a 3:1 buying incentive under which mills in the last series of auctions could get an import quota for a ton of cotton for every 3 tons purchased from the reserves.



The reserve price had been widely expected to drop from the uniform 19,000 yuan per ton on the last series of sales. Under the new auctions, a price below the 18,000 yuan will be available on the lower grades.



John Bondurant, Memphis-based trader and Delta producer, put a pencil to what was accurately rumored at the time, a day before the official announcement, and figured China likely would continue to buy U.S. cotton unless some other restrictions were imposed.



With March futures around 78.50 cents, as at Monday’s close, and about 8.5 cents required to land cotton in China, the landed cost would be around 87 cents, he said. And this would be about $1.22 after paying the 40 percent import duty.



U.S. export sales have remained strong in the face of all the talk about the impending Chinese sales. Export sales have totaled 1.143 million running bales in the three reporting weeks ended Nov. 14, raising 2013-14 commitments to 6.116 million.



China has been the leading buyer, booking 1.446 million bales or 24 percent of overall 2013-14 export commitments totaling 6.116 million.



Yet considering various tariffs and penalties imposed on import quotas, some traders still figured a competitive spot futures price now would be somewhere in the low 70s.



On the crop scene, harvesting was expected to resume later in the week in parts of the Texas High Plains after rain, sleet and snow last weekend paralyzed field activities throughout the region.



Kenny Day, area director of the classing facility at Lubbock, said estimates indicated about 80 percent or more of the crop in his territory was off the stalk. Sample receipts slowed to about 25,000 to 30,000 a day from 37,000 to 38,000 prior to the snow.



Quality has remained good on the 1.091 million running bales classed through Nov. 26, Day said, though the amount of lower mikes — a measure of fiber fineness or maturity — has been rising.



About 60 percent of the estimated crop in the Lubbock territory was expected to have been classed through midweek and around 57 percent in the Lamesa area.



The Lubbock and Lamesa offices expect to class 1.9 million and 700,000 bales, respectively, for a 2013-crop total of 2.6 million. The area served by the two offices is larger than that in the High Plains crop districts of 1-North and 1-South where the crop is pegged at a combined 2.445 million statistical bales, down 17 percent from last season.



Across the entire U.S. Cotton Belt, the harvest advanced 10 percentage points to 78 percent complete during the week ended Nov. 24, USDA reported, 10 points behind a year ago and five points behind average.



Classing of upland cotton reached 6.105 million running bales as of Nov. 21, down from 9.901 million bales a year ago. Cotton tenderable on futures contracts improved to 62.4 percent, against 56 percent last year.



Meanwhile, trend-following funds sold 1,753 lots in futures-options combined in the week ended Nov. 19 to boost their net shorts to 5,783 lots, their largest net short position since Nov. 13, 2012.



Index funds’ activity was almost balanced as they sold a net 32 lots to nudge their net longs down to 64,411, while traders with non-reportable positions sold a net 1,245 lots to hike their net shorts to 5,565 lots.



Commercials bought a net 3,030 lots, covering 11,957 shorts while liquidating 8,927 longs to reduce their net shorts to 53,063 lots.