Fifth year of price divergence looms, ICAC says. Cotton again expected to lose market share this season. Price forecast lowered as world stocks projection raised.
Cotton futures extended a string of higher closes to three in a row Tuesday, settling at the highest finish since Aug. 26.
Benchmark December gained 97 points to settle at 84.47 cents, just off the high of its 145-point range from down 45 points at 83.05 to up 100 points at 84.50 cents. October closed up 114 points to 84.85 cents and March rose 71 points to 83.76 cents.
Volume slowed to an estimated 13,600 lots from 14,653 lots the previous session when spreads totaled 4,770 lots or 32%, EFS 500 lots and EFP 238 lots. Options volume totaled 2,158 calls and 1,554 puts.
It appears that 2013-14 will be the fifth consecutive season in which cotton prices will be substantially above polyester prices in China, says the International Cotton Advisory Committee.
The Cotlook A Index of world prices and the price of polyester in China were essentially equal during most of the 2000s. But those price indices diverged in 2009-10.
Last month, the A Index averaged approximately 93 cents per pound, while polyester in China averaged around 76 cents.
“This is a substantial difference in a high-volume, low-margin business like yarn spinning,” ICAC said in a monthly report, “and thus cotton is expected to continue to lose market share this season.”
Despite the loss of market share, world cotton consumption is rising in absolute terms and is estimated by ICAC at 108.95 million bales in 2013-14, up from 107.98 million bales last season, though down from last monthΆs forecast of 110.23 million bales.
Falling mill use of cotton in China owing to its cotton procurement at prices above international values is encouraging a significant shift in mill use to other countries.
World production is forecast by ICAC at 117.35 million bales, down 190,000 bales from last monthΆs estimate and 3.5% below last seasonΆs output. The United States likely will account for most of the decline from last year, with its crop projected down 25% to 13.1 million bales.
The ICAC reduced its estimate of world trade 780,000 bales from a month ago to 40.42 million bales, still above USDAΆs August forecast of 38.4 million bales.
With production expected to exceed use by 8.4 million bales, up 1.1 million bales from last month, the ICAC forecast the 2013-14 average A Index to range from 85 to 126 cents. The midpoint of 103 cents is down from 108 cents foreseen last month but up from 88 cents in 2012-13.
The ICAC raised its estimate of world ending stocks by 500,000 bales from a month ago to 91.49 million, against USDAΆs August estimate of a record high 93.77 million. China accounted for the bulk of the USDA estimate with 58.3 million bales, equal to about 6.5 months of global use.
Updated U.S. and world supply-demand estimates will be issued by USDA on Thursday. The USDAΆs August estimates narrowed the margin by which world production is expected to exceed consumption to 6.53 million bales from 8.23 million foreseen the prior month and 13.64 million in 2012-13.
Futures open interest dipped 263 lots Monday to 169,171, with DecemberΆs down 1,058 lots to 118,922 and MarchΆs up 611 lots to 37,595. Certificated stocks were unchanged at 18,206 bales. Awaiting review were 1,042 bales.
The Cotlook A Index gained 25 points Tuesday morning to 89.40 cents, narrowing the premium to MondayΆs December futures settlement by four points to 5.90 cents.
