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Weekly Cotton Comments                 02/19 05:25

   Cotton Leaps to Four New Contract High Closes

   Time needed to assess Texas ag damage from Arctic blast. USDA projected 
cotton plantings at 12 million acres. Exports in 2020-21 estimated by NCC at 
15.8 million bales; 2021-22 ending stocks could be among the lowest in 20 
years. ICAC puts 2020-21 world cotton use 4.87 million bales below USDA 
estimate. Hedge funds bought 12,867 lots. Unpriced call mill sales fell 4,336 
lots in 2020-crop contracts.

Duane Howell
DTN Contributing Cotton Analyst

   Cotton futures rose to four new high closes in a row, finishing up 243 
points or 2.8% to 90.30 cents in most-active May for the holiday-shortened 
marketing week ended Thursday.

   May opened the period last Friday by breaking out to a new contract high at 
88.72 and leaving 85.80 as an important short-term support area.  Longer-term 
support is seen at the Jan. 29 low at 80.95. It has made higher lows every 
session since then except one when it rallied to settle higher and hasn't 
closed below a prior-day low since Jan. 28.

   The May-July spread narrowed five points to settle at 79 points of carry. 
Widening of the March-May spread to full carry raised speculation that delivery 
notices on March may move into strong commercial hands. First notice day is 
Monday. December made a new contract high at 85.32 cents and closed up 130 
points for the week to 85.08.

   Volume slipped to an average of 47,793 lots per session from the prior 
week's (heavily influenced by fund rolling) of 80,409 lots. Open interest 
coming into Thursday had dipped a slight 285 lots from a week ago to 247,058, 
with March's down 26,847 lots to 5,854, suggesting a relatively quiet delivery 
period; May's up 16,226 lots to 119,516; July's up 5,407 lots to 57,730; and 
December's up 4,224 lots to 51,354. Cert stocks grew 3,516 bales to 100,326.

   Outside vibes -- mainly the grains, soybeans, energy, stock markets and the 
down-trending dollar index -- have continued to influence cotton futures, 
analysts say. Uncertainties on cotton planting and production prospects and a 
tightening balance sheet have contributed to support.

   With supplies left in grower hands dwindling, cash online sales fell to 
9,910 bales from 27,530 bales on The Seam. Prices gained 154 points to average 
79.68 cents per pound, reflecting a 218-point gain to 30.07 cents in premiums 
over loan rates. Grower-to-business sales were 5,009 bales and 
business-to-business sales were 4,901 bales. Offerings late Wednesday were 
66,226 bales.

   It will take time to assess the full impact of damage to Texas agriculture 
by an Arctic blast that has blanketed the Lone Star State with prolonged cold, 
snow and ice, specialists said. Oranges were frozen through in southern Texas 
and some grapefruits were nearly frozen through. About 80% of the orange crop 
and two-thirds of the grapefruit had been harvested, but lasting tree damage 
was feared.

   The final planting date for cotton in the Rio Grande Valley, traditional 
source of the nation's first new-crop supply, is about six weeks away. Grain 
sorghum planting seed shortages were reported in the Upper Coast and Coastal 
Bend, suggesting some acres may be shifted to cotton.

   On the competitive front, the average of the five lowest-priced world 
growths for the Far East gained 281 points to 92.38 cents, while the 
lowest-priced U.S. cotton landed there advanced 325 points to 95.55 cents. The 
U.S. premium thus widened 44 points to 3.17 cents, which is said to have found 
some resistance via export inquiries. The adjusted world price rose to 73.13 
cents, 21.13 cents over the base U.S. loan rate.

   World values as measured by the Cotlook A Index gained 385 points to 95.10 
cents, widening the international basis over the prior-day March futures close 
by 16 points to 6.74 cents.

   Looking ahead, USDA projected the U.S. planted area for cotton at 12 million 
acres in 2021, only slightly lower than the year before "as rebounding world 
demand and late-season damage to production returned prices to nearly near-ago 
relative levels."

   The forecast was made by Chief Economist Seth Meyer, who was named to the 
post in December, at the opening of USDA's annual Agricultural Outlook Forum 
Thursday. It compares with the National Cotton Council's early planting 
intentions survey of 11.461 million acres, down 5.2% from last year and the 
smallest cotton area in five years, and with analysts' estimates reported here 
earlier of 11.4 million to 12.2 million acres.

   "With a considerable reduction in carryin stocks and steady exports, ending 
stocks are expected to again decline in 2021-22 despite growth in the crop," 
Meyer said, but added that "unusually low moisture in the Southwest adds 

   More details on the outlook for cotton and other crops are expected at 
outlook sessions on Friday. Meyer said plantings are expected to reach 90 
million acres of soybeans and 92 million acres of corn, up 6.9 million and 1.2 
million acres, respectively, from last year.

   On the export front, U.S. 2020-21 marketing year shipments are expected to 
reach 15.8 million statistical 480-pound bales, the National Cotton Council 
said in its annual economic outlook report. This is 300,000 bales above USDA's 
forecast earlier this month and is a result of large carryover sales from last 
season and increased purchases by China.

   As of Feb 4, the latest data available with USDA's weekly report delayed 
this week until Friday, total commitments stood at 14.1 million statistical 
bales and 7.8 million bales had been shipped. Current commitments are the 
highest at this point in the marketing year since the 2010 crop year, NCC noted.

   While export competition from Brazil remains strong, the United States was 
able to regain market share in China as a result of the Phase 1 agreement, said 
Jody Campiche, NCC economist. The United States also has had increased 
opportunities for higher export sales to other markets owing to lower 
production in Australia, Pakistan and Turkey.

   The council projected exports to drop slightly to 15.4 million bales in 
2021-22. With large stocks in other major exporting countries and a partial 
recovery in Australia's production, the United States will continue to face 
stiff export competition.

   But when combined with U.S. mill use, forecast by the NCC at 2.8 million 
bales, 400,000 bales above USDA's 2020-21 estimate, market offtake would exceed 
production, projected by the NCC at 16.7 million bales.

   The NCC crop forecast is based on its planting intentions survey, 
abandonment of 18.1%, a harvested area of 9.4 million acres, and a yield of 855 
pounds per acre. The crop would be 16.3 million upland bales and 431,000 
extra-long staple bales.

   Under this scenario, U.S. 2021-crop ending stocks would fall to 2.6 million 
bales, down from 4.3 million bales estimated by USDA for this season. If 
realized, those ending stocks would be one of the lowest of the last 20 years.

   World 2020-21 balance sheets still show considerable differences, with the 
International Cotton Advisory's latest estimates putting consumption at the 
equivalent of 112.34 million 480-pound bales, 4.87 million below USDA's 
February forecast. The ICAC projected world ending stocks at 96.96 million 
bales, 1.22 million above USDA's.

   On the U.S. crop scene, upland classing fell to 66,845 running bales during 
the week ended Feb. 11. The season's total of 13.48 million RB was about 27% 
below the 18.453 million RB graded as of Nov. 13 last year.

   Classing of extra-long staple cotton slowed to 11,075 RB to hike the total 
for the season to 476,135, about 22% below the 612,979 RB graded a year ago. 
The all-cotton total rose to 13.966 million RB, nearly 27% below last year's 
19.066 million RB. These figures suggest the USDA crop estimate, down about 25% 
from the prior year, still may be overstated.

   Money-flow data showed trend-following funds bought 12,867 lots in cotton 
futures-options combined during the week ended Feb. 9, adding 9,658 longs and 
covering 3,209 shorts to raise their net longs to 70,157 lots.

   Index funds bought 2,527 lots to boost their net longs to 77,875, according 
to the latest trader-commitments data reported by the Commodity Futures Trading 
Commission, while non-reportable traders -- mostly smaller speculators -- 
bought 3,187 lots to hike theirs to 14,615 lots.

   Commercials sold a net 18,581 lots, adding 19,258 shorts and 677 longs to 
push their net shorts up to 162,648 lots. This increased their net shorts 6.8 
percentage points to 55.2% of the open interest.

   Prices during the reporting week ranged from 81.76 cents to a then contract 
high of 88.32 cents, basis May, which then hit a new high and closed on a new 
high settlement at the end of the calendar week. Combined open interest fell 
3,485 lots to a delta-adjusted 294,340.

   Unpriced on-call mill sales in the March, May and July contracts declined 
4,336 lots to 73,780 last week, 39.6%% of the declining futures OI, according 
to CFTC call data reported after the close Thursday. The unfixed producer 
position dropped 1,912 lots to 13,966. The net call difference fell to 59,814 
lots, 32.1% of the OI.

   Meanwhile, representatives of the NCC and the American Cotton Shippers 
Association joined other agriculture groups in briefing the Federal Maritime 
Commission regarding container shortages.

   Concern has grown concerning the number of containers that have sailed empty 
to Asia to expedite exports out of those countries. This has caused shortages 
throughout the supply chain for numerous industries.

   The cotton industry's comments highlighted the importance of trade, 
especially to Asian markets, and noted that the use of forward contracts 
requires timely shipping. The NCC and the ACSA reminded the commissioners that 
the U.S. transportation infrastructure is a key component of the industry's 
competitiveness in the world market.    

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