Profit-taking on the heels of a new all-time high that had left a bearish island top formation on charts and the approaching end of the year pressured the lead delivery in cotton futures last week.
The market finished mixed for the week ended Thursday. Prices lost 528 points to 142.84 cents in spot March but gained 56 points to 135.23 cents in May, 321 points to 126.54 cents in July and 340 points to 99.20 cents in December 2011.
A weakening of the cash basis took some luster off long positions in March, analysts said, and some bear spreading developed amid talk that some merchants will switch their purchasing basis to May.
Traders appeared to have been in a yearend mindset. Many large traders had left the market after pocketing profits and were believed unlikely to return until after the New Year. Thin trading volumes made for exaggerated price moves.
A possibility of index fund selling loomed in early January as part of rebalancing. The big increase in cotton prices this year could foster a need for index funds to sell a rather large number of contracts, analysts said.
Cotton, up over 78 percent year to date, remained on track to be one the leading components of the Reuters-Jefferies commodity index. The now-expired December contract posted the highest price since the Civil War and March topped that, hitting a new record high of 159.12 cents on Dec. 21.
Cash grower sales slowed for the four-day trading week on The Seam to 14,812 bales from 23,561 bales the previous week. Prices fell 568 points to an average of 131.43 cents, reflecting a 985-point decline to 77.12 cents in premiums over loan redemption rates.
The market digested a USDA report showing net U.S. all-cotton export sales during the week of record high prices ended Dec. 23 totaled 106,000 running bales for shipment this season and 171,700 bales for delivery next season. Combined sales of 277,700 running bales exceeded expectations.
Shipments of 307,200 running bales lifted exports for the season to 3.984 million bales, up 17.5 percent from a year ago and around 26 percent of the USDA forecast. Exports need to average roughly 365,300 running bales a week to reach the estimate.
Looking ahead, the National Cotton Council has distributed its annual survey of planting intentions to producers throughout the Cotton Belt.
The survey, conducted to help with industry planning and policy deliberations, provides the basis for the economic outlook presented to delegates during the council’s annual meeting in early February.
Survey results, always eagerly awaited, are expected to be reported at a meeting of cotton producers Friday afternoon, Feb. 4, and reviewed at a joint meeting of program committees the next morning. The industry-wide meeting is scheduled through Feb. 6 in San Antonio.
To enhance the survey’s accuracy, producers have been encouraged to respond by the Jan. 18 deadline. The survey was distributed through a combination of regular mail and e-mail.
Most private estimates thus far appear to have foreseen an increase of roughly 1.5 million to 2 million acres from last year’s all-cotton plantings of 11.04 million. But cotton faces an ongoing battle with other acreage-competing crops.
On the international scene, India’s cotton export deadline will expire on Feb. 25 for the remaining unshipped quantity of the 5.5 million bales (of 170 kilos or 375 pounds) allowed for overseas sales in the 2010-11 season, Reuters reported, quoting Trade Secretary Rahul Khullar.
Shipment of the remaining 2.5 million bales will start Jan. 11, the report said. India will consider increasing exports in the current season in mid-January after the second batch of shipments begins. Exporters were asked to apply for registration certificates between Dec. 31 and Jan. 6 for the unshipped quantities.
Arrivals of 2010-11 cotton in Indian markets rose 5 percent from a year earlier to 11.576 million bales through last Sunday, according to reports quoting the Cotton Corp. of India.
Elsewhere, China soon is expected to issue an additional 1.7 million metric tons (7.808 million bales) of import quotas. This would be in addition to the 894,000 tons (4.107 million bales) of low-tariff quotas it issues annually and would bring the total for 2011 to about 2.6 million tons thus far.
China usually issues the additional import quotas, which are subject to a sliding tax scale between 5 percent and 40 percent, in several batches from the yearend. In the first 11 months of 2010, China imported 2.38 million tons (10.932 million bales), up 81 percent from the corresponding period last year.
For the 2010-11 marketing year ending July 31, China’s imports are expected by USDA to rebound 38 percent to 15 million bales from last season amid concerns over declining Chinese production and ending stocks. This would put China’s share of global imports at 39 percent, up from 30 percent in 2009-10 and the second largest trade share on record.
A vice agricultural minister said on the agency’s website China’s 2010-11 cotton output is expected to fall 2.8 percent to 6.2 million metric tons. This would convert to 28.476 million statistical bales, down from USDA’s December estimate of 30 million. Wet, cold conditions late in the season damaged some cotton, hurting both yields and quality.
Mill use in China, the world’s largest cotton spinner is expected to decline 6 percent to 47 million bales. However, that still would be about 40 percent of world consumption. China has spun over 40 percent of the world total since 2006-07.
In the Southern Hemisphere, Australia still could reap a record crop despite losses from severe flooding. About 7,500 hectares (one hectare equals 2.471 acres) destroyed in Queensland represented little more than 1 percent of the country’s planted area, Cotton Australia estimated.
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 email@example.com.