Sunday, February 14, 2010
Story last updated at 2/13/2010 - 10:11 pm A stunning surge in U.S. export prospects ignited an explosive cotton futures rally last week in the heaviest trading since the summer of 2008.
The market posted gains for the week ended Thursday of 393 points to 72.92 cents in spot March, 331 points to 73.81 cents in May, 320 points to 74.65 cents in July and 194 points to 72.70 cents in december.
March locked up the 300-point daily limit on the heels of USDA’s monthly supply-demand report and closed the period 637 points from its lowest price on Feb. 5 since Oct. 13. It finished at its highest settlement since Jan. 13.
Volume hit a huge 66,065 lots at midweek to bring the two-day turnover following the USDA report to a whopping 124,224 lots. The all-time single-session high is 85,945 lots on Feb. 15, 2008.Interest intensified in the March delivery period as the March-May spread tightened and the inverted July-December intercrop spread widened amid an extremely tight situation foreseen for current-crop supplies.
A decline in certificated stocks to 468,874 bales from 502,230 bales a week earlier and a high for the period of 527,856 bales fanned fresh talk that sizable a chunk of the stocks might be committed. Cotton awaiting review fell to 16,128 bales from 52,180 bales a week ago.The March-May spread traded as narrow as 15 points and the July- December straddle traded as wide as a 310-point premium on the current- crop month. Full carrying charges in the popular current-crop, new- crop straddle would be with December at about a 450-point premium.Mill demand slipped on the fast price rebound, trade sources said. The rally slowed as the May contract, which overtook March in open interest, approached technical resistance around 74.25 cents. May pushed above 74 cents two consecutive sessions but closed below there each time.
The USDA shocked the market by raising its export forecast a million bales from a month ago to 12 million and cutting ending stocks a like amount to 3.3 million. Stocks-to-use plunged to 21.4 percent from 29.9 percent foreseen last month and 37.6 percent a year ago. The ratio would be the lowest since 2003-04 and the carryout the smallest since 1995-96.
Export prospects surged far beyond the most optimistic of pre-report estimates. Led by a drop in New York futures, recent lower prices for U.S. cotton combined with strong foreign mill demand boosted export prospects, USDA said.
The USDA hiked its forecast for the marketing year average farm price to 59 to 65 cents, up two cents on the lower end and one cent on the higher end. The midpoint of 62 cents is up from an average of 47.80 cents last season.
The export and carryout forecasts reinforced prospects for an extremely tight situation before new-crop supplies begin moving to market. Many of the early new-crop shipments will come from 2009-crop supplies. The jump in the export estimate was the largest veteran analysts could recall at this stage of a crop year.
A widened spread between spot futures and the Cotlook A Index of world values played a big role in the recent robust export sales pace. The competitiveness of U.S. cotton was enhanced as prices tied to futures fell five weeks in a row, tumbling faster than the A Index.
The spread widened from 385 points just after the March futures close on Jan. 4 to 828 points after the Feb. 5 finish. Then it narrowed to 688 points Thursday as futures rebounded faster.
Globally, the report featured higher beginning stocks, largely offset by higher consumption. Beginning stocks were revised upward in China owing to modest reductions in consumption for the 2007-08 and 2008-09 marketing years.
World production was virtually unchanged at 102.74 million bales, up 30,000 bales or 0.3 percent from last month, while consumption rose by 1.17 million bales or 1.03 percent to 115.53 million. Ending stocks rose a marginal 360,000 bales or 0.7 percent to 52.08 million.
The world stocks-to-use ratio at 45.1 percent is little changed from 45.2 percent the two previous months and is the lowest since 1994-95. World trade was little changed at 33.8 million bales. The higher U.S. exports were mainly offset by a reduction in exports from India.The gap between foreign production and foreign mill use widened by 1.14 million bales on the month to a new all-time high of 21.79 million, up from a foreign crop shortfall last season of 11.88 million bales.
Looking ahead, U.S. producers reported intentions to plant 10.093 million acres of cotton this spring, up 10.3 percent from 9.149 million acres in 2009, according to the National Cotton Council’s annual survey.
Based on an average abandonment of 11.5 percent with 8.9 million acres for harvest and states-level yield assumptions, production would rise to 15.5 million bales from 12.4 million in 2009-10.
Growers in all four production regions reported plans to expand upland acreage from last year. Intentions were up 10 percent to 9.9 million acres for upland and up 24 percent to 176,000 acres for Pima.The West showed the largest percentage expansion of 26.6 percent,while the largest acreage increase was in the Southwest at 475,000 or up 9.1 percent. The other two regions, the Southeast and Mid-South, reported increases of 12.2 and 8.4 percent, respectively.
Prevailing market conditions for cotton are more favorable than in the past couple of years, said NCC senior economist Dale Cougot. Growers will continue to monitor market conditions and compare relative crop prices and input costs in coming weeks, Cougot pointed out, noting that this could alter their final decisions.
Upland intentions in Texas rose 8.3 percent to 5.414 million acres, accounting for 54 percent of the U.S. all-cotton area. With wider variances in abandonment and yields, Texas could swing crop estimates in either direction by several million bales as the season progresses.DUANE HOWELL is retired farm editor of The Avalanche-Journal.
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Source:
http://lubbockonline.com/stories/021410/col_562784958.shtml
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