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Weekly Cotton Comments                 02/28 04:56

   Cotton Plunges 9.9% As Equities Take Big Hit

   Cash online weekly sales fell to lowest since October 10. Hedge funds nudged 
net longs up a bit ahead of the big price break. Mills priced 3,021 lots in 
current-crop contracts. U.S. cotton outlook eyed, with first stocks drawdown 
seen in four years. Price plunge clouds acreage prospects. New planting survey 
nears. 

By Duane Howell
DTN Cotton Correspondent

   Cotton futures, especially sensitive to economic conditions as a demand 
indicator, plunged to lows not seen since October amid heavy global equity 
losses on fears of the coronavirus impact on the world economy. 

   Most-active May, down six sessions in a row, lost 687 points or 9.9% for the 
marketing week ended Thursday to close at 62.50 cents. It closed just off the 
low of its 689-point range from 69.36 cents last Friday to 62.47 cents on 
Thursday, lowest intraday price since October 8. May posted limit-down losses 
on Monday and again Thursday. 

   Selling accelerated on Monday on a huge volume of 81,424 lots when May 
tested -- later breaking below -- the midpoint (65.96) of the rally from the 
August low of 58.84 to the January high of 73.08 cents. 

   Maturing March lost 615 points for the week to settle at 62.60 cents, 10 
points over May; July shed 696 points to 62.28; and December dropped 679 points 
to 63.25. 

   Volume dipped to a still hefty average of 51,659 lots per session from 
66,439 the prior week. Open interest fell 11,833 lots to 195,727, with March's 
down 9,533 lots to 101; May's down 2,657 lots to 105,248; July's down 532 lots 
to 42,979; and December's down 87 lots to 38,192.

   Cert stocks grew 4,173 bales to 37,522, most of which apparently are 
intended for delivery on March. March delivery notices have totaled 321 lots 
(32,100 bales), all stopped by Term Commodities, trading arm of Allenberg 
Cotton Co. 

   Cash online sales fell to 13,023 bales from 28,558 bales on The Seam.  Those 
sales were the lowest since the week ended October 10. Prices dropped 354 
points to an average of 57.15 cents, with premiums over loan repayment rates 
down 261-points to an average of 7.70 cents.

   Sales included 8,550 bales on the grower-to-business exchange, down from 
24,401 bales, and 4,473 bales on the business-to-business platform, up slightly 
from 4,175 bales. Offerings Wednesday were 253,749 bales. 

   Plummeting major stock indexes -- the Dow Jones Industrial Average closed 
down 1,191 points or 4.42%, the largest one-day loss ever -- weighed on the 
cotton market, which disregarded the largest combined two-crop export sales of 
the season. The Dow closed in correction territory.

   Traders noted that Cotlook reported about 70% of the spinning mills in the 
Hebei Province now are operating, though transportation isn't expected to 
restart until next week. The Cotlook A Index of world values as of Thursday 
morning had lost 400 points from a week ago to 74.30 cents. 

   Net U.S. all-cotton export sales for this season and next rose to a combined 
441,600 running bales (RB) from 386,000 RB the previous week, with net upland 
sales for 2019-20 at 214,600 RB down 9% from the week before and 32% from the 
prior four-week average. 

   Current-crop upland sales went to 16 countries, led by Vietnam, China, 
Pakistan, Turkey and Indonesia. Gross sales were 257,100 RB and cancellations 
were 42,400 RB. Net new-crop sales totaled 198,900 RB, up from 141,200 RB the 
week before, with Vietnam booking 176,000 RB. 

   All-cotton commitments for 2019-20 reached 14.125 million RB, up 1.665 
million RB or 13% from a year ago and 88% of the USDA estimate. Weekly sales 
averaging roughly 83,500 RB would match the export forecast. Commitments for 
2020-21 of 1.518 million RB, down from 2.315 million RB in forward bookings 
last year, were 9% of the early USDA export forecast.  Year-ago forward sales 
were about 14% of the current 2019-20 estimate. 

   Shipments of upland and Pima combined slipped to 342,300 RB from 385,900 RB 
the prior week and 361,400 RB a year ago. Upland shipments of 242,700 RB, down 
14% from the previous week and 15% from the four-week average, went to 21 
countries, headed by Vietnam, Pakistan, China, Turkey and Indonesia. 

   All-cotton exports for the season of 6.808 million RB were up 20% from 5.649 
million RB a year ago and were 42% of the USDA estimate. Year-ago shipments 
were 39% of final 2018-19 exports. Shipments averaging approximately 408,700 RB 
a week are needed to achieve the estimate.   

   Meanwhile, trend-following funds bought a net 298 lots in cotton 
futures-options combined to nudge their net longs up to 14,458 during the week 
ended February 18, according to the latest supplemental traders-commitments 
data reported by the Commodity Futures Trading Commission. 

   They added 1,415 longs and 1,117 shorts. Index funds sold a net 1,588 lots 
to reduce their net longs to 80,312, and non-reportable traders bought a net 
160 lots to trim theirs to 4,667. Commercials bought a net 1,129 lots, covering 
11,585 shorts and liquidating 10,456 longs to lower their net shorts to 99,436 
lots. 

   Managed money traders sold a net 2,452 lots to drop their net longs to 
31,429, adding 3,207 shorts and 755 longs. 

   Prices during the reporting week ranged from 68.08 to 69.72 cents, basis 
May, highest at the time since January 31. Combined open interest declined 
16,496 lots to a delta-adjusted 232,528, a cumulative three-week reduction of 
82,790 lots. 

   Separately, CFTC on-call data showed mills priced 3,021 lots in the March, 
May and July contracts last week, reducing their unpriced sales in those 
remaining 2019-crop contract months to 57,509. Producers priced 3,916 lots to 
cut their unfixed position to 37,572. 

   This resulted in the net call difference rising by 895 lots to 37,572, 35.8% 
of the open interest. Unpriced mill sales (potential buying) outweighed the 
unfixed producer position (potential selling) by a ratio of 2.9:1. 

   Looking ahead, USDA's early projection for a U.S. 2020 cotton planted area 
of 12.5 million acres, 9% below last year and the smallest since 2016, 
initially raised a few eyebrows, coming out below the National Cotton Council's 
earlier intentions survey of near 13 million acres. 

   Historically, both USDA and NCC noted, the relationship between expected 
harvest prices for cotton, corn and soybeans has played a key role in the 
acreage planted to cotton. Expected wheat and peanut prices also are a lesser 
in Texas and Georgia. 

   Cotton futures prices from mid-January through mid-February averaged 4 cents 
(nearly 5.5%) below price expectations in early 2019, USDA said in a report at 
its Agricultural Outlook Forum this month. Price declines were smaller for corn 
(minus 1.5%) and soybeans (minus 2.5%). These price ratios thus favored 
alternative crops this year. 

   Another factor in acreage decisions stems from experiences the prior season. 
Crop yields in 2019 were above average in three of the four Cotton Belt regions 
but were significantly lower in the Southwest, where approximately 60% of the 
upland cotton is planted. Also, implementation of the Phase One trade deal with 
China and the demand impact of the coronavirus add further uncertainty about 
2020. 

   Harvested acreage is projected at about 11 million, 7% below 2019. This 
reflects an abandonment rate of about 12.5%, based on regional long-run 
averages, except for the Southwest, where 2020 abandonment is forecast at 19%, 
down from 23% in 2019. Abandonment rates are highly variable in the Southwest 
and conditions there will impact the U.S. crop. 

   Steve Verett, CEO of the Lubbock-based Plains Cotton Growers, Inc., said at 
a PCG advisory group meeting last Friday that he wouldn't be surprised to see 
cotton plantings on the High Plains this spring of around 4 million acres, 
though reductions are expected in some northern areas. Plantings last year were 
4.355 million acres; abandonment was higher than average at 31%. 

   Yields are projected by USDA at a national average -- based on regional 
averages -- of 855 pounds per harvested acre, up from 817 pounds in 2019.  The 
crop is forecast at 19.5 million bales, 3% below 2109, as a rebound in yield 
much of the acreage reduction. Smaller crops are forecast for most of the belt 
except for the Southwest where USDA says production could rise to the second 
highest on record. 

   While Texas growers reported intentions in the NCC survey to cut cotton 
acres 4.2%, producers in Kansas and Oklahoma intended to increase cotton 
plantings by 5.1% and 3.3%, respectively. 

   With higher carry-in stocks of 5.4 million bales foreseen by USDA for 
2020-21 but lower production, the total supply -- 24.9 million bales -- would 
nearly match that of 2019-20, which was the highest since 2007-08. 

   Domestic mill use is forecast at 3 million bales, essentially flat with 
2019-20, and exports unchanged at 16.5 million bales. Rising imports in China 
and easing U.S.-China trade tensions are favorable to U.S. exports to some 
degree, but Brazilian exports are expected near record levels and additional 
competition is likely early in the season as India's remaining 
price-intervention stocks become available to world markets. 

   Ending stocks are projected down slightly at 5.3 million bales, the first 
decline in four years. This would be down 100,000 bales from the year before. 
Reduced stocks in the United States and other countries outside China are 
expected to reduce pressure on cotton prices in 2020-21, USDA says, and the 
average price received by producers could rise to 64 cents per pound from the 
current 2019-20 forecast of 62 cents. 

   But the spreading coronavirus has clouded the outlook. The cotton futures 
price plunge has raised new questions on the prospective cotton acreage. Some 
analysts have wondered aloud if even the USDA estimate -- lowest of three 
published early season forecasts -- can be achieved.

   The USDA's first survey of producer planting intentions will be conducted in 
early March and results reported on March 31. 


(KR)

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