The information contained herein is provided by Plains Cotton Cooperative Association (PCCA), a farmer-owned cotton marketing cooperative headquartered in Lubbock, Texas. It is for general informational purposes only and is obtained from sources believed to be reliable; however its accuracy and completeness is not guaranteed by PCCA, and PCCA offers no representations or warranties of any kind in providing this information. Nothing contained herein is intended, or should be construed, as advice or guidance for the marketing of cotton.

February 16, 2018

Nearby Cotton Futures Trend Lower, New Crop Futures Fare Better

Nearby cotton futures spent most of the week slowly winding lower. Speculators continued to sell out of their futures positions, and open interest, the count of all open futures contracts in the market, fell 26,628 to 259,069 from last Thursday’s close. March futures touched a high of 77.47 cents per pound Monday but closed with marginal new lows each day thereafter. Daily volume was still very high at 71,698 contracts on Monday as index funds finished rolling their positions forward to May but dropped steadily over the week with 36,342 contracts trading Thursday. New crop futures performed better than March and May. December 2018 futures stayed within the range from 75.12 to 75.96 cents all week.

NCC Releases Survey Results

Last Saturday, the National Cotton Council (NCC) delivered its Economic Outlook, including its planting intentions survey results, at its annual meeting in Fort Worth. The survey showed mixed intentions across the main cotton regions with some increasing and some decreasing cotton plantings; however, respondents intended to increase total planted acreage by 3.7 percent to 13.1 million acres. Nevertheless, the increased acreage did not translate into higher production in NCC’s analysis. Acknowledging the drought in the Southwest, NCC expects higher abandonment this year at 15.4 percent, along with lower yield at 842 pounds per harvested acre, resulting in 19.42 million bales of production and ending stocks of 7.04 million bales.

USDA Classing Totals 19.13 Million Bales

Classing has slowed this week. The number of gins with samples classed fell to 138 from 189 last week. The number of samples classed also fell to 250,020 from 360,952 last week. Delta states are virtually finished, and the Southeast is almost done, too. Texas, Oklahoma, California, Arizona and Kansas made up more than 96 percent of this week’s volume. All the Oklahoma and Kansas gins were still receiving classing from the classing office. For the season, USDA has classed 19,130,845 bales of Upland and Pima cotton combined. Converting to the USDA’s 480-pound statistical bale, there are still approximately 1.5 million bales left to hit the current production estimate.

Export Sales Indicate Demand Still Good

Cotton exporters made net new sales of 364,800 bales in the week ended February 8, which signals demand is still very healthy. The largest buyers were Turkey (67,700 bales), Vietnam (66,800), China (56,700), Bangladesh (55,000), and India (34,000). The broad distribution of sales across 19 markets was another good sign that mills are able to handle these price levels. Actual shipments of cotton were less than last week, and the pace continues to be a concern among many traders. Nevertheless, there are signs that shipments may accelerate, and it would only take a few good weeks to allay traders’ fears.

On-call Fixations

Mills did another excellent job of reducing their on-call exposure last week. Mills fixed more than half their remaining March commitment in the week ended last Friday, which left them with just 894,200 bales to fix against March futures this week. We expect nearly all of March and some of the May on-call position has been fixed this week, too. While the May and July fixation commitments remain large, there are two months before mills face another fixation deadline. The aggressive fixations have bought the mills a little more time.

Markets Quieter Due to Holidays

Traders have a lighter week ahead. Cash markets are calming down in the rest of the country, although they will remain somewhat active here in the Southwest as ginning and classing continue. Export markets also are quieter this week as East Asia celebrates the Lunar New Year and Spring Festival. U.S. traders also have something to observe. President’s Day will shut down the futures market on Monday and delay the U.S. Export Sales report, which is the key information traders will be watching in the week ahead.

Current Prices Seem to Work for Buyers

Neither the USDA nor NCC’s looser balance sheets seem to have terribly troubled the market. The aggressive export sales pace, along with mills’ fixations, signal that current prices are workable for buyers. In addition to new buying, drought prospects and a decent rally in competing row crop prices have helped to support prices, too. There is plenty of demand for U.S. cotton, but next year’s supply is still uncertain.

In the week ahead:

  • The Export Sales report will be released Friday at 7:30 a.m. Central Time.
  • The CFTC Cotton On-Call report will be released Thursday at 2:30 p.m. Central Time.
  • The CFTC’s Commitments-of-Traders report will be released Friday at 2:30 p.m. Central Time.

Friday, Feb. 9

Cotton futures began the marketing week by settling with very modest gains at the Intercontinental Exchange (ICE); however, they had to reverse course near the end of the session. March cotton opened higher but struggled and moved to negative ground until buyers returned in the final minutes of trading. The contract settled in the top half of its 153-point range at 76.68 cents per pound, up 6 points.

Monday, Feb. 12

Cotton was on the defensive and struggled to find direction, trading mixed for most of the session. March opened near unchanged but quickly moved higher early before selling increased, moving the contract to negative ground and an intraday low of 76.10 cents. March settled at 76.45, down 23 points. May followed suit and settled at 77.45, down 18 points.

Tuesday, Feb. 13

Pressure on nearby contracts continued, and May took over as the lead month the previous session with volume exceeding March at ICE. May traded lower most of the morning session, although it tried to gain ground a few times. The contract fell to a low of 76.66 cents and tried but failed to return to positive ground. May settled 5 points lower at 77.40 cents. Spreading was the main focus.

Wednesday, Feb. 14

The decline in futures prices continued for a third consecutive session. May cotton met resistance as the ICE session began and traded lower the entire session. Buyers tried to lift the contract higher, but sellers kept up the pressure. May settled in the bottom half of its narrow 66-point range at 76.97 cents, down 43 points.

Thursday, Feb. 15

Despite the solid export sales report, cotton futures continued to move lower. May opened slightly lower then quickly moved to positive ground, reaching an intraday high of 77.65 cents. Sellers returned and moved the contract off its high. May settled in the bottom half of its 121-point range at 76.77, down 20 points.