Howell: Cotton Ends Year on Three-Week High
January 3, 2012 By Duane Howell
From Lubbockonline.com
Current-crop cotton futures hit three-week highs, stabilizing the recent downtrend, and new-crop prices edged upward amid talk of reduced prospective plantings in some leading producing countries last week.
Spot March gained 439 points for the week ended Thursday to close at 91.63 cents, finishing 728 points above the Dec. 14 low and settling unchanged to higher nine of 10 sessions. December 2012 rose 170 points to 87.82 cents.
Cash sales on The Seam’s grower-to-business exchange climbed to 28,171 bales from 22,749 bales the previous week. This was the second highest weekly volume of the season, highlighted by a marketing year daily high of 20,337 bales on Wednesday when futures soared limit up.
Prices advanced 258 points to average 85.85 cents, reflecting a 208-point gain to 30.68 cents in premiums over loan redemption rates. Price averages ranged from 78.37 cents on Tuesday to 88.35 cents on Thursday.
The midweek futures breakout seemed primarily technically inspired, said Mike Stevens, independent cotton analyst of Mandeville, La., and a former longtime resident of Lubbock.
Cotton’s advance appeared “particularly amazing” considering strength of the dollar, he said at midweek. March had surged up the daily limit and reached a synthetic high of 92.50 cents before giving up a third of the futures gains as a robust dollar and weak commodities took a toll.
Fundamentally, Chinese prices had remained fully steady after edging up the previous 12 sessions, Stevens pointed out. The China Cotton Index was quoted earlier in the week at 19,156 yuan per metric ton or 136.82 cents per pound.
The exchange’s spec-hedge data had indicated speculators were re-entering the market and were ready to commit to either side following technical encouragement, he said.
March broke through the 88.29-cent high of Dec. 16 after three attempts and closed above the 21-day moving average (89.25) for the first time since the middle of November.
The move triggered buy stops as shorts covered and volume quickened. Technically, Stevens looked for March to attempt to consolidate from 90 to 94 cents. This marked a three-week consolidation area from Nov. 21-Dec. 9.
Anticipated buying from index fund rebalancing beginning next month may have been a supportive factor. Rallies in grains on dry weather concerns in South America, China’s purchases to rebuild its reserves and a recent Pakistani announcement of a cotton buying program to help growers and ginners also may have helped to underpin prices.
Increased fixations were noted, including some from mills but especially from producers. Hedge selling was seen against the sharp increase in cash grower sales.
Some domestic mills have expanded downtime for the holidays to reduce finished product inventories, reports have indicated. Some planned a few days off and others scheduled up to two weeks. A denim mill in South Carolina, in operation since 2002, has announced its closure.
Looking ahead, concerns about global economic growth prospects and the potential impact on cotton demand restrained gains in new-crop prices even as talk circulated of lower plantings in the United States, China and some other big producing countries.
The ongoing drought in the Southwest does not bode well for U.S. production, as one analyst noted, though the region’s output could be up from the disaster of 2011 when historic drought and record heat resulted in all-time high abandonment in key producing areas of Texas.
Click here for full story in original context.
GET THE NEWSLETTER TODAY!
