DTN Cotton Close: Rallies From 15-Session Low

    ©Debra L Ferguson Stock Photography

    Fed sent new signals about a possible December rate increase. Harvest price for revenue-based 2016-crop insurance pegged at 69 cents on the Texas High Plains. Some improvement expected in weekly export sales.

    Cotton futures settled in the green Wednesday, rallying from a 15-session low amid underpinning of mill fixation buying and talk of fresh export inquiries.

    Spot December closed up 40 points to 68.60 cents, around the upper quarter of its 71-point range from down 13 points at 68.07 to up 58 points at 68.78 cents. It bounced from a tick below last week’s low to the lowest intraday print since Oct. 12.

    March gained 47 points to settle at 69.13 cents, while December 2017 rose 30 points to finish at 68.90 cents.

    The Federal Reserve held short-term interest rates steady and sent new hints it expects to raise rates in December at its final scheduled meeting of 2016, Dow Jones Newswires reported near the cotton close.

    Volume slowed to an estimated 29,381 lots from 33,896 lots the previous session when spreads accounted for 17,746 lots or 52%, EFP 328 lots and EFS 167 lots. Options volume totaled 6,386 calls and 2,398 puts.

    The revenue-based 2016-crop insurance harvest price for cotton on the Texas High Plains is pegged at 69 cents per pound, based on daily average settlements of December futures during October.

    This is up from the projected price of 60 cents, which was based on an average of the closing prices of the December 2016 futures contract during February.

    The Risk Management Agency now is expected to recalculate the level of insurance revenue protection for producers who purchased cotton crop insurance policies with harvest price inclusion.

    Take, for example, a producer with an actual production history yield of 500 pounds per acre who buys a policy with a guarantee at 60% and thus has an insurance yield of 300 pounds.

    The 300 pounds times the 69-cent harvest price would be $207 per acre, up from $180 an acre as calculated on the 60-cent projected price, a difference of $27. But payment is triggered strictly by actual yield or crop loss, an insurance source pointed out.

    So the producer with a 300-pound yield guarantee who harvests, say, 200 pounds an acre would have an insurance payment of $138 an acre. If that producer harvests exactly 300 pounds an acre or more, there would no insurance payment.

    Relatively few High Plains producers are expected to get cotton crop insurance payments this year, with abandonment projected well below average and yields generally above average. The higher harvest price, however, may help some producers with an early loss or some with low dryland yields.

    Insurance price discovery periods vary across the Cotton Belt, even in some instances within areas with the same insurance closing date, which is March 15 on the High Plains. Last year, the projected insurance price on the High Plains was 64 cents and the harvest price was 63 cents.

    Meanwhile, U.S. weekly export sales, scheduled for release by USDA at 7:30 a.m. CDT Thursday, will be for a reporting period during which closing prices on the December contract averaged 69.07 cents.

    Some improvement is expected from net upland sales the previous week ended Oct. 20 of 129,280 running bales, a four-week low. Closing December prices that week averaged 70.76 cents. Upland sales the last four weeks have averaged 213,800 RB.

    Futures open interest fell 3,479 lots Tuesday to 257,262, with December’s down 5,120 lots to 127,969 and March’s up 558 lots to 88,012. Cert stocks grew 2,073 bales to 35,571.

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