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Futures market stumbles

“A dull affair” mostly describes the week of October 15-19 in cotton. December futures did post a three-week high and a high close Monday but resistance kicked in above 79 cents, and the balance of the week saw prices drift lower. December ultimately lost 45 points on the week to close at 77.92 cents.

The October 1 low of 75.37 has now stood for nearly three weeks, providing hope the harvest low is in, though it’s clearly too early to make that call. However, today’s CFTC Commitments of Traders report showed speculators were small net buyers during the week that ended Tuesday. This was the first uptick in the specs’ net long position in a while, so there was probably some bottom-picking going on.

There wasn’t much in the way of fresh fundamental news. Many of the industry’s top leaders were in Hong Kong for ICA’s annual meeting. The flow of information from the event seemed uninspiring. Most of the fresh business reportedly focused on non-U.S. growths. The keynote outlook presentation covered a list of familiar bullish and bearish influences without revealing a clear bias regarding future price direction.

Corn, soybeans and wheat all posted healthy losses this week. Energies and industrial commodities generally lost ground as well. U.S. stock prices basically held their own, but they certainly didn’t repair any of the damage done last week. Blame it on the now-familiar dynamic of sour trade relations and fears of a slowdown in the global economy.

In this environment, it wouldn’t have been surprising to see a more significant decline in cotton prices. Put another way, it may simply be the fear of as-yet unrealized demand destruction that is keeping the cotton bull down. After all, the current supply/demand numbers show a significant drawdown in world ending stocks for 2018-19. U.S. ending stocks are currently projected for a small increase. However, recent weather-related yield losses in the Southeast and West Texas may tip that balance.

As always, China is a big piece in the puzzle. In this week’s otherwise-unremarkable export report, the People’s Republic was responsible for the biggest numbers: current crop sales were net cancellations of 18,500 bales. Shipments of 33,200 bales were slightly ahead of second-place Viet Nam. Finally, China bought 17,600 bales of the total 24,200 bales for new crop.

Clearly, a renewed faith in China’s appetite for U.S. cotton would be a game-changer. For now though, the focus is on the U.S./Sino trade war and troubling signals from the Chinese economy. The downtrend in Chinese internal prices continued this week as traders anxiously seek signs of a bottom.

Technically, the futures market appears to be working on a potential short-term head-and-shoulders bottom. This is within the context of a technical situation that is long-term negative, so it’s no reason to get too friendly. However, if confirmed, this little bottom could kick off a correction to at least the low 80s. It might also convince traders the harvest low is, in fact, in.

If the nearby contract can get decisively above 84 cents, Taurus may go on a rampage. Today, that looks like a long shot, but a widely-read analyst recently likened cotton to a “bull market with the handbrake on.” Watch for signs the brakes are coming off.

The Pima market has likewise been quiet. Net sales on this week’s export report were only 5,000 bales; exports were 6,300. Quoted prices have stabilized at levels that would work back to about $1.30 at the grower level and haven’t changed in weeks. Harvest seems to be going well in the San Joaquin Valley and early classings reveal a top notch ELS crop. Cumulative U.S. sales this season total 236,500 bales, trailing last year’s 308,700 sold as of a similar date. Exports though are ahead: 59,200 to date versus 45,800 last year.

USDA’s October report cuts world stocks, increases U.S. output

There were some significant surprises in USDA’s October reports, but not necessarily any analysts were expecting, as world ending stocks fell over three million bales due to revisions in Indian supply/demand numbers dating back to 2002.

The U.S. saw slightly larger production, a cut to exports and higher ending stocks, due to various adjustments. One of the more surprising changes was the realization of 14.04 million acres planted, only 10.53 million will be harvested—essentially a quarter of planted acreage will not be picked in various areas, and that will likely increase after the latest hurricane damage is assessed.

The net impact of the report was slightly bullish in the futures market, which closed with modest gains. The report measures the situation as of October 1, so crop losses sustained in the Southeastern U.S. (rumored to be as much as a million bales) due to Hurricane Michael are not factored into this report.

In fact, overall total U.S. production was raised a net 81,000 bales to 19.76 million bales from the prior month though still over a million bales below last season’s 20.92 million bales. U.S. yield was up six pounds from last month at 901 pounds per acre but four pounds below last year’s—in fact, if realized, the U.S. average yield for all cotton and Upland cotton will be the second highest on record.

The report does seem to incorporate crop losses sustained in the Carolinas and Virginia due to Hurricane Florence, with yield losses of 117 pounds per acre in North Carolina, 83 pounds in South Carolina and 75 pounds in Virginia. Additional losses may occur in those states as well due to more rain and wind from Michael.

Georgia, which like the Florida Panhandle took the brunt of Hurricane Michael, saw its yield climb 34 pounds per acre compared to the previous month to reach a crop size of 2.9 million bales. Florida’s estimated 220,000 bales in 2018 will probably be reduced.

In this report, though, the Peach State was not the only state with higher production: Texas saw its crop climb by 200,000 bales to 6.732 million bales, though still 2.6 million bales lower than last season’s 9.3 million bales.

In the region with Texas, Oklahoma and Kansas, the regional yield tallied an adjusted 731 pounds, 20 pounds more than its five-year average of 711 pounds per harvested acre. Texas posted a 22-pound increase in its yield, compared to last month, at 716 pounds per acre, while Oklahoma yield was 783 pounds and Kansas topped the thousand-pound mark at an estimated 1,011 pounds per acre.

In the Far West, adjustments were mixed, as California’s Upland yield fell, while Arizona’s increased and New Mexico was unchanged. Combined Upland production in the West is an estimated 802,000 bales, with an estimated harvested area of 263,000 acres and a regional average yield of 1,464 pounds, 12 pounds less than the region’s five-year average.

Of that, California would contribute 172,000 bales on a yield of 1,685 pounds (down 78 pounds from last month) from only 49,000 acres, while Arizona’s yield moved up to 1,546 pounds per acre, or 48 pounds more than the prior month. That would result in a crop of 480,000 bales from 149,000 harvested acres. New Mexico posted an impressive yield gain over its five-year average, up 93 pounds to an estimated 1,108 pounds per harvested acre, and a crop of 150,000 bales from 65,000 acres.

The Pima crop was unchanged from last month at an estimated 771,000 bales. Harvested area was pegged at 245,000 acres with an average yield of 1,508 pounds per harvested acre, with California producing the bulk of that, 701,000 bales from 209,000 acres and some 1,610 pounds per acre.
Texas chipped in 32,000 bales, while Arizona with 25,000 and New Mexico with 13,000 filled out the rest.

The Southeast crop is an estimated 5.6 million bales, based on 2.83 million harvested acres and a regional average yield of 950 pounds, 80 pounds more than the region’s five-year average. The only state expected to see yields less than its five-year average was North Carolina, but again, based on reports from the region, significant cuts are likely ahead in Southeastern production following the most recent hurricane.

In the Mid-South, expected production was 4.63 million bales, with large yield gains in Mississippi, Missouri and Louisiana offsetting a slight reduction in Tennessee.

Domestic mill use is unchanged from last month, estimated at 3.40 million bales. Exports, however, were lowered 200,000 bales to 15.50 million bales, due to “reduced world trade and consumption,” USDA said. This generates a total 2018-19 offtake of 18.90 million bales. Ending stocks for 2018-19 are projected at 5.00 million bales, an ending stocks-to-use ratio of 26.5 percent, the highest since 2015-16.

The picture was different in the world supply and demand figures, as ending stocks fell three million bales to 74.45 million, down from 77.46 million a month ago.

World production was lowered 310,000 bales, with the bulk of the reduction due to a half million bale cut in Australia’s output from 3.0 million to 2.5 million bales.

World mill use was lowered 180,000 bales to a projected 127.76 million bales in 2018-19 but increased in 2017-18 to 123.27 million bales.
The really significant change came in India. USDA wrote in its report, “Stocks are lowered mainly in India, as revisions are made to production, consumption, and loss over 2002–03 to 2013–14 to better reflect Indian government data (consumption) and the impact of shifting producers’ marketing patterns.”

So instead of entering the new season with 11.6 million bales, India has instead only 8.7 million. Production and mill use were unchanged from last, so the season will conclude with 8.98 million bales. China’s figures were repeated from last month, but with beginning stocks of 38.02 million bale, production of 27.5 million, imports of 7.0 million and mill use of 42.5 million, ending stocks in 2018–19 will be 8.2 million bales lower at 29.87 million bales. That’s a substantial 48-percentage-point drop from the 56.7 million bales in Chinese beginning stocks in 2016.

New videos aid effort to eliminate contamination

It’s cotton-pickin’ time and it’s more important than ever for cotton producers to deliver contaminant-free cotton. The National Cotton Council has created and made available two excellent videos to help growers to achieve that goal.

The Council urges producers, ginners and industry members to make seed cotton/lint contamination prevention the highest priority and these comprehensive educational videos are available in English and Spanish.

The English version can be viewed at https://youtu.be/GKnNTc3Qmxwin.

The Spanish version is available at https://www.youtube.com/watch?v=53lcKIaj2ts.

Other resources are at http://www.cotton.org/tech/quality/contamfree.cfm. The Council has also mailed USB drives with the videos to every gin in the country.