Howell: Spec selling amid demand worries slams cotton ahead of crop report

LubbockOnline.com, TX
Lubbock Avalanche-Journal
Selling attributed to speculators amid ongoing demand worries sent cotton futures to new lows for the move last week as traders awaited USDA’s monthly supply-demand estimates.

Broad commodities liquidation contributed to cotton’s losses along with dollar strength, analysts said, while short-covering and trade buying on export sales offered a modicum of support late in the period.
Most-active December plunged 460 points during the week ended Thursday to 63.86 cents, near the period’s low of 63.63 cents, its lowest print since early June 2014. The close was a whopping 11.07 cents below the Aug. 1 high.
Traders hoped the supply-demand report, which was due Friday, would clarify some of the demand murkiness linked to world economic uncertainties. The August report produced a fleeting limit-up move.
U.S. export commitments for 2014-09 as of Sept. 4 of 4.649 million running bales trailed year-earlier bookings by 3.9 percent. While it’s still early in the marketing year, USDA in August projected an 8 percent increase in exports from last season.
Recent reports have indicated that China, the world’s largest cotton consumer and producer, has larger domestic supplies than previously thought and that any dramatic near-term surge in import demand would appear unlikely.
With demand issues in the forefront, the market showed little reaction to massive Hurricane Ike bearing down on the Texas coast, where it was expected to hit late Friday or early Saturday.
Cotton harvesting had reached the final stages in the Coastal Bend and Upper Coastal Bend. An earlier storm decimated Rio Grande Valley cotton, and Hurricane Gustav inflicted heavy crop losses in Louisiana.
Gustav damaged cotton in two certificated warehouses in New Orleans, the exchange said. Extent of the damage still was being assessed.
Under exchange rules, all bales stored in warehouses which have been damaged are “automatically rendered non-deliverable on the contract.” Those bales will remain in certificated stocks.
Bales that were not damaged “shall be declared tenderable only after they have been put in merchantable condition, reweighed and accepted by the exchange as deliverable.”
Certificated stocks stored at New Orleans were 38,980 bales at midweek or 2.5 percent of the total, which was up 2,168 bales from a week earlier at 1,528,548.
Meanwhile, U.S. cotton crop ratings declined slightly during the week ended last Sunday, with good to excellent down a percentage point to 49 percent, fair unchanged at 31 percent and poor to very poor up a point to 20 percent. A year ago, ratings showed good to excellent at 52 percent, fair at 28 percent and poor to very poor at 20 percent.
Cotton setting bolls advanced three points to 97 percent, against 98 percent on average, while boll opening expanded eight points to 29 percent, behind the average of 39 percent.
The Dow Jones national crop index based on the USDA report dipped 0.4 of a point from the second highest of the season to 92.8 percent of normal, down from 93.9 percent last year.
Ratings declined in Arkansas, Louisiana, Mississippi and Virginia; improved in North Carolina, Oklahoma, South Carolina and Texas; and were steady elsewhere. Conditions plunged 16 points to 73 percent in storm-struck Louisiana and gained a point to 89 percent in cotton-leading Texas where the crop has improved four weeks in a row.
Wet, cool conditions in the West Texas Plains have heightened the need for heat units and sunshine to allow cotton to make optimum use of beneficial August rains.
Progress of the crop heading into September impressed some industry people, even with slightly below normal area-wide temperatures in August. This was reflected in USDA’s weekly crop progress reports.
Statewide crop ratings improved five percentage points from Aug. 3 through Sept. 8, as recorded by the Dow Jones index. Based on conditions around Aug. 1, USDA estimated the West Texas Plains would produce 83 percent of the Texas crop and 33 percent of the U.S. upland output.
August brought an overall average of 3.65 inches at the 40 National Weather Service cooperative stations in the High and Rolling Plains, 1.06 inches above normal. Temperatures averaged 89.7 degrees for the highs and 64.9 degrees for the lows for an overall average of 77.3 degrees, 0.8 of a degree below normal.
Industry veterans recall how wet, cool Septembers have seriously damaged many promising High Plains crops over the years, especially irrigated cotton. But some believe the newer, high-tech varieties would perform better under similar adversity.
Based on conditions around Sept. 1, prior to record rainfalls Thursday in the Lubbock area, some observers foresaw Texas production climbing from a month earlier, led by improvement on the High Plains, despite setbacks in South Texas.
Producer acreage certifications at Farm Service Agency offices have hinted an increase in the Texas plantings estimate might be warranted, but this was believed unlikely to show up in the September report.
In other news, Xinjiang, which accounts for 40 percent of China’s cotton crop, will reduce the area devoted to the fiber crop by 26 percent over the next five years, Reuters reported, quoting the People’s Daily.
The cotton area will be cut to 1.33 million hectares (one hectare equals 2.471 acres) from 1.8 million to free up more land for animal pasturage, the paper reported, citing government officials.
Earlier, the Xinjiang reported surprising 2014-08 procurement data indicating its crop reached 3.290 million metric tons (15.11 million bales), 390,000 tons (1.791 million bales) more than prior estimates.
Back on the home front, U.S. loan repayments on 2014-crop cotton leaped to 958,811 bales during the week ended Sept. 2, largest redemptions thus far. This left old-crop loans outstanding of 2,085,521 bales.
Outstanding 2014-09 loans rose by 22,586 bales to 92,651 bales on entries of 23,284 bales and repayments on 698 bales.
DUANE HOWELL is retired farm editor of The Avalanche-Journal. Letters can be sent to P.O. Box 16347, Lubbock 79490, or faxed to (806) 799-7462. His e-mail address is duane.howell@sbcglobal.net.