Howell: Profit-takers trim gains as cotton futures finish mixed

Mill fixations, bullish spreading and some fresh fund buying produced a mixed performance in cotton futures last week.

Spot July surged to a 1,135-point gain for the week ended Thursday to close at 155.65 cents, while December finished even at 119.19 cents after bouncing 974 points from its May 13 low. March lost 126 points to 111.21 cents.

Profit-taking trimmed gains. July at its high of 161.32 cents had registered its highest print since April 26 amid concerns about a squeeze on deliverable supplies. Unfixed mill sales in July fell 1,031 lots coming into the calendar week to 21,462 lots (2,146,200 bales).

Certificated stocks grew to 284,666 bales as of May 9, declined to 166,354 bales as of May 16 and then rose three days in a row to 190,159 bales, with 26,696 bales awaiting review. The three-day rise may have softened concerns about deliverable supplies.

Current-crop world prices reflected in the Cotlook A Index gained 190 points to 165.65 cents as of Thursday morning, up 190 points for the week. The premium to the prior-session July futures close fell to 7.69 cents from 15.25 cents a week earlier.

Drought effects

Drought in Texas, dryness in Georgia and flooding in the Delta offered new-crop support. No estimates were available on the cotton acres and intended acres affected by Delta flooding. Growers in the five-state Delta region had reported intentions to plant 2.28 million acres of cotton, but a significant impact was expected on harvested acres.

Some tentative estimates indicated drought could slash the Texas High Plains output by around 25 percent to 30 percent from 2010-11 to 3.7 million to 4 million bales. This would be down from 5.331 million bales produced last year.

Jay Yates, extension risk management specialist at Lubbock, projected 4 million bales in reviewing crop conditions on the monthly Ag Market Network conference call. He based the projection on such factors as yields and abandonments in years with similar crop starts.

The northern High Plains crop, which is about 75 percent irrigated, "is right on track," Yates said, though many growers there and elsewhere in the area had to pre-water fields a second time after hot, dry winds left insufficient moisture to achieve stands.

Cotton in the southern High Plains is about 40 percent irrigated, Yates pointed out. However, a sizable portion of that is with light water, and timely supplemental rainfall is needed for optimum yields.

The adjoining Rolling Plains east of Lubbock, which produced 1.023 million bales in 2010-11, could see its cotton output cut in half, Yates said. Only about 20 percent of the cotton there is irrigated, he noted.

Dryland producers are expected to plant all their intended cotton acres as insurance deadlines approach, Yates said. Prevented-planting provisions are considered unworkable for drought.

The USDA will begin surveys June 1-10 for its June 30 planted acreage report. But late planting and deferred appraisal periods beyond crop insurance deadlines will extend abandonment uncertainties into at least late June on the High Plains and later in the Rolling Plains.

This could skew the July crop estimate, which will be based in large measure on analysis of the planted acreage data. The first USDA survey-based estimate of acres for harvest will be in the August data.

Planting across the Cotton Belt advanced a quickened 16 percentage points during the week ended May 15 to 42 percent of the expected acreage, tightening the margin behind last year's pace to four points and behind the five-year average to two points.

Growers in the five-state Delta region had planted about 51 percent, up from 28 percent a week earlier but down from 64 percent last year and 59 percent on average. Louisiana growers led the nation at 91 percent planted, up from 74 percent a year ago and the average of 80 percent.

Planters rolled at a 12-point clip in Texas to 36 percent done, slightly ahead of 35 percent last year and 34 percent on average. Fields in the squaring stage reached 9 percent, against 8 percent last year and the average.

Progress lagged at 38 percent complete in Georgia, behind 43 percent in 2010 and the average of 41 percent. Planting elsewhere in the Southeast ranged from 50 percent complete in Alabama to 75 percent in Virginia, against averages of 63 percent and 65 percent, respectively.

Growers in Arizona led the West at 90 percent planted, up from 82 percent last year and the average. California progress edged up two points to 87 percent, behind six and eight points, respectively.

On the demand side, U.S. old-crop export commitments fell for the eighth consecutive week on net cancellations of 29,200 running bales, while net new-crop sales of 21,900 running bales marked the lightest forward bookings since the week ended Dec. 23.

In statistical bales, old-crop commitments of 15.659 million remained slightly above USDA's estimate and new-crop bookings of 5.753 million still were an impressive 43 percent of the forecast. Shipments of 317,300 running bales boosted exports for the season to 12.244 million statistical bales, 79 percent of the USDA estimate.

The international market

In international news, Brazilian cotton exports are set to double to a record 900,000 metric tons (4.13 million bales) from the harvest beginning in June, Reuters said in a report from Sao Paulo. About 750,000 tons or about 83 percent were reported to have been sold forward.

The USDA this month projected Brazil's 2010-11 exports at 2 million bales for the marketing year ending July 31 and 4.5 million bales for the season beginning Aug. 1. Brazil exported 1.99 million bales in 2009-10.

Meanwhile, trend-following funds bought a net 1,822 lots in futures-options combined for the week ended May 10 to hike their net longs to 25,631 lots.

Hedge funds have been net buyers two straight weeks. Index funds sold a net 132 lots to nudge their net longs down 49,775 lots.

Source: http://lubbockonline.com/agriculture/2011-05-21/howell-profit-takers-trim-gains-cotton-futures-finish-mixed