China’s 2018-19 cotton production forecast by FAS post to fall slightly despite increased plantings. Higher cotton consumption and hefty import increase also foreseen.
Cotton futures settled mixed Tuesday, with July posting a moderate gain to regain all but one point of what it lost the prior session.
July settled up 64 points to 84.48 cents, in the upper quarter of its 108-point range from down 23 points at 83.61 to up 85 points at 84.69 cents. Maturing May gained 44 points to settle at 85.12 cents, inverting over July.
December eked up two points to settle at 78.80 cents, in the middle of its tight 68-point range from 78.55 — matching Monday’s low — to 79.23 cents. The other months settled down 32 to up 13 points.
Large outstanding old-crop on-call mill sales and lack of significant overnight rainfall in the Texas High Plains cotton area offered support. The prime cotton planting season in the Lubbock area is at hand.
Volume increased to an estimated 21,900 lots from 20,200 lots the previous session when spreads accounted for 4,494 lots or 22% and EFS 100 lots. Options volume rose to 6,917 lots (3,038 calls and 3,879 puts) from 3,222 lots (2,148 calls and 1,074 puts).
China’s planted area this year is forecast at 3.385 million hectares (one hectare equals 2.471 acres), up from 3.355 million in 2017, according to USDA’s Foreign Agricultural Service post in Beijing.
However, the post’s latest estimates projected the crop at 5.9 million metric tons (27.1 million 480-pound bales), down slightly from 6 million tons (27.56 million bales). The increase in acreage is expected to be offset by lower — but still higher than average — yields.
The USDA supply-demand report next week is expected to contain the first “official” country-by-country forecasts for 2018-19 as well as final 2017-18 revisions in U.S. production, yields and acreage along with an annual ginning summary.
Cotton consumption is forecast by FAS to increase to 40.42 million bales from 40 million this season. The narrowing gap between domestic and global cotton prices contributed to the consumption recovery this season from 37.5 million bales 2016-17 and also resulted in lower yarn imports.
With China continuing to focus this season on reducing its state cotton reserves, the FAS post forecasts total 2018-19 ending stocks to fall to 34.069 million bales from its estimate of 41.019 million this season and a significant reduction from 48.419 million in 2016-17.
The stocks to use ratio would fall to 84% from 102% estimated for 2017-18 and 129% in 2016-17. The latest USDA estimate of China’s 2017-18 stocks at 40.97 million bales is 15% below last season and the lowest in six years, nearly 26 million bales below the record set in 2014-15.
Anticipating sales of cotton reserves and continuing restrictions on additional import quotas, the FAS estimated China’s 2017-18 imports at 5.1 million bales, little changed from the prior year (same as USDA’s April projection) and the second lowest in 13 years.
Based on a possibility Beijing will issue additional import quotas in the new marketing year to meet the textile industry’s demand for higher grade foreign cotton to help stay competitive in export markets, the FAS projected a hefty increase in 2018-19 imports to 6.43 million bales.
Meanwhile, certified stocks dipped 176 bales to 73,285 bales. Open interest increased 368 lots to 268,387 on Monday, with May’s down 70 lots to 35, July’s down 122 lots to 135,846 and December’s up 144 lots to 106,583.
