Howell: Rebound inspires visions of near bottom as cotton remains pressured

Posted: November 28, 2010 - 1:44am

A bounce from a steep sell-off in cotton futures to close back above the 50-day moving average, basis most-active March, just ahead of Thanksgiving inspired visions of an initial step in the potential establishment of a reaction low.

March — rebounding after posting only one prior higher finish in 10 sessions — closed with a solid gain near the high of Wednesday’s range but still was assured of a losing week in abbreviated trading set for Friday.
The benchmark contract lost 756 points to 116.59 cents for the holiday-shortened week ended Wednesday. Spot December shed 951 points to 119.39 cents and December 2011 fell 143 points to 87.96 cents.
However, March also closed back above a 50 percent retracement (112.73) of its huge move from its July low of 73.50 cents to its contract high of 151.95 cents on Nov. 10. At the week’s low of 111.13 cents, March had lost 26.9 percent from its lifetime high.

Cash grower sales slowed to 27,152 bales on The Seam for the four-day trading week. These were down from the prior week’s 42,962 bales. Daily average prices declined to 105.l82 to 121.43 cents. Premiums over loan redemption rates fell to 50.88 to 65.78 cents.

Domestic mill use topped most expectations at a healthy seasonally adjusted, annualized rate of 3.783 million bales in October, up 3.3 percent from an upwardly revised 3.664 million the prior month and 11.2 percent from 3.402 million in October 2009. The USDA forecast for the crop year is 3.45 million bales, down a bit from 3.46 million in 2009-10.
Annualized rates now have exceeded year-ago levels six months in a row. Rates for the first three months of the marketing year have averaged 3.575 million bales, up 8.4 percent from August-October last season.
The market initially shrugged off news that China told banks to expand lending to agricultural producers, processors and traders and cut loans to non-agricultural sectors as part of efforts to curb inflation.
Cotton was among the major agricultural products mentioned in a China Banking Regulatory commission statement as needing financial support because they are in short supply. The CRBC told banks to simplify loan procedures and shorten loan approval times for agricultural applicants.

Banks that extend loans used for speculation, hoarding and price manipulation in the agricultural sector will be severely punished, the statement said.
While China’s cotton imports from all destinations last month fell 19 percent from October 2009 to 96,096 metric tons (441,400 bales), its imports from the United States have risen sharply for the crop year despite limited U.S. supplies.

U.S. all-cotton shipments to China totaled 860,900 running bales for the marketing year through Nov. 11, up 63 percent from 528,900 bales through the comparable period last season, according to Foreign Agricultural Service data.

China has booked 4.092 million running bales of U.S. cotton for shipment this season, up from just 900,000 bales a year ago and about a third of overall U.S. 2010-11 commitments. About 21 percent of China’s commitments have been shipped, against 59 percent of sales a year ago.


In other international news, cotton arrivals in India declined to 4.69 million bales (170 kilos or 375 pounds) for the season to Nov. 21 from 4.81 million during the corresponding period last season, the state-run Cotton Corp. of India said on its website.
Unseasonal rains dampened harvesting, the report said. The Cotton Association of India earlier this month estimated the crop at 35.7 million local-sized bales (27.8 million 480-pound bales), up from an earlier forecast by the Cotton Advisory Board of 32.5 million.
The latest USDA estimate projected the crop at 26 million (480-pound) bales, up from 23.2 million last season.

The market continued to tumble even after two large stoppers took 96 percent of the first-day December delivery notices issued by a major merchant. Allenberg Cotton Co. issued all the first-day December delivery notices, 367, for the house. Panterra stopped 232 or 63 percent and Newedge stopped 122 or 33 percent, both for customer accounts. The other 13 notices were scattered among five stoppers.
Panterra and Newedge continued stopping subsequent notices without retendering any. This suggested they may have been stopping for overseas interests. Notices going into the Thanksgiving break had totaled 426, including 416 from Allenberg.

Certificated stocks grew to 75,792 bales, still historically low but up from 43,586 bales a week earlier, with 20,947 bales awaiting review.

On the U.S. crop scene, harvesting advanced 8 percentage points during the week ended Nov. 21 to 86 percent completed, up 17 points from a year ago and 13 points from the five-year average, USDA reported.
The Texas harvest expanded 12 points to 80 percent done, ahead of 68 percent a year ago and 62 percent for the five-year average. High winds Thanksgiving week slowed the rapidly moving harvest in the High Plains.
Well over 80 percent of a record 5.74-million-bale crop projected for the High Plains was expected to be off the stalk by Thanksgiving and gins to have processed as much as 50 percent of the high-quality output, the Lubbock-based Plains Cotton Growers, Inc., estimated.

Meanwhile, trend-following funds sold a hefty net 10,223 lots to reduce their net long position to 40,934 lots in cotton futures with options during the week ended Nov. 23, according to supplemental traders-commitments data from the Commodity Futures Trading Commission.

This was their smallest net long position since Aug. 3. Index funds bought a net 583 lots to nudge their net longs up to 59,607 lots, and small traders sold a net 2,513 lots to cut theirs to 8,523 lots.
Commercials reduced outright shorts by 56,742 lots and longs by 44,588 lots, trimming their net shorts by 12,154 lots to 109,124. Futures-options open interest dropped 128,685 lots to 331,006. The reporting period encompassed the expiration of December options.


Source: http://lubbockonline.com/agriculture/2010-11-28/howell-rebound-inspires-visions-near-bottom-cotton-remains-pressured