2017-04-05 / Farm & Ranch


Cotton Futures decline ahead of prospective plantings report

March 31, 2017

Cotton futures prices at the Intercontinental Exchange (ICE) lost ground this week due to several factors, most notably anticipation of USDA’s 2017 Prospective Plantings report. Ahead of the report, private estimates ranged from 10.5 million to 13.3 million and averaged 11.4 million U.S. cotton acres compared to just under 10.1 million acres planted last year. The results of a survey conducted by the National Cotton Council and released in early February indicated U.S. cotton farmers would plant just over 11.0 million acres.

The plantings report, released today at 11:00 a.m. CDT, projected U.S. upland cotton acres at 12.0 million, a 21 percent increase from 2016. Pima cotton acres were projected at 232,000, a 19 percent increase.

In the five trading days ended March 30, the May futures contract traded from an intraday high of 78.15 cents per pound to a low of 76.10 cents, losing a total of 104 points at the end of the period. The December contract traded from a high of 75.55 cents to a low of 73.64, losing 180 points by the close of trading on March 30. However, the de- cline in prices may have been a market correction rather than a trend reversal.

Another market factor was rain in West Texas this week with some areas receiving up to 2 inches of precipitation. Ahead of the rains, the U.S. Drought Monitor map for the week ended March 28 showed Texas soils were rated abnormally dry to moderate drought.

Some traders and analysts also have been somewhat concerned about the slow pace of sales from China’s reserves. Daily purchases of cotton offered this week averaged 60.4 percent; however, there are two plausible explanations. According to reports from China, undesirable cotton offered is carried over to the next day’s auction, and textile mills, rather than cotton merchants, are the predominant buyers. Cumulative sales since this year’s auction began through March 30 have surpassed 2.0 million bales.

Another strong U.S. export report failed to boost cotton futures this week. According to USDA, net sales of U.S. upland cotton in the week ended March 23 totaled 392,300 bales for delivery in the 2016-17 marketing year, up 20 percent from the previous week and 14 percent from the fourweek average. Featured buyers were Turkey, Vietnam, India, and China among the 22 destinations. Net sales for delivery in the 2017-18 marketing year totaled 84,300 bales. Export shipments that week also were impressive at 394,000 bales. Primary destinations were Vietnam, China, Turkey, Pakistan, and Indonesia.

Export commitments of U.S. cotton now total 13.4 million statistical bales, well above USDA’s estimate for the marketing year. Export shipments now total 8.3 million bales; therefore, weekly shipments only need to average 241,595 bales in the remaining 19 weeks of the marketing year.

The level of unfixed oncall sales also is of interest to market observers. Mill fixations for May 2017 noted in the latest CFTC report were good, but the level of unfixed remains very high. The inversion from July to December will make it difficult for mills to continue deferring fixations beyond July, thus there is the potential for the market to move higher.

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