ChinaΆs long-expected resumption of sales from its massive reserves reported set to begin on Thursday. Announcement appeared mostly in line with trader expectations.
Cotton futures settled ahead for a second session Tuesday as traders digested news of the long-expected resumption of some sales from ChinaΆs huge national reserves.
March settled up 68 points to 79.14 cents, its highest finish since Nov. 6, in the upper half of its 144-point range from down 25 points at 78.21 cents to up 119 points at 79.65 cents. Maturing December closed up 89 points to 77.85 cents.
Volume quickened to an estimated 19,800 lots from 15,611 lots the previous session when spreads accounted for 4,499 lots or 29% and EFP for 51 lots. Options volume rose to 4,449 calls and 3,114 puts.
China plans to sell part of its stockpile beginning Thursday with a minimum price of 18,000 yuan per metric ton, equal to about $1.34 a pound, Dow Jones Newswires said, citing a report on government-cotton industry website Cncotton.com.
The China National Cotton Reserves Corp. held daily auctions from January through July, but mills bought just 25% of the cotton offered because of the high prices the government wanted, traders said.
The CNCRC said it will sell cotton from the 2011 crop, raising concerns about the quality of the offerings.
Details thus far appeared mostly in line with trader expectations. Traders had figured Chinese mills now could purchase foreign supplies and pay a 40% import duty for less than they could buy domestic cotton.
The latest rumors were that the reserve price would drop from 19,000 yuan per metric ton on the last series of sales to between 17,500 and 18,000 yuan or a decline of about 5% to 8%, John Bondurant, Memphis-based trader and Delta producer, said on Monday.
He noted in his daily Notebook report the previous sales price resulted in an internal price roughly equivalent to $1.44 a pound.
With March futures around 78.50 cents, as at MondayΆs close, and about 8.5 cents required to land cotton in China, the landed cost would be around 87 cents, he said. And this times 1.4 would be about $1.22.
“On this math, China may continue to buy cotton unless some other restrictions are imposed and assuming these rumors are right,” Bondurant said, noting that U.S. export sales lately have been strong despite all the talk about the impending resumption of Chinese stockpile sales.
Net U.S. all-cotton export sales for the last three reporting weeks ended Nov. 14 have totaled 1.143 million running bales to raise export commitments for this season to 6.116 million, 61% of the USDA forecast, against about 57% final exports at the corresponding point last season.
China has been the leading buyer, booking 1.446 million running bales or 24% of the 2013-14 export commitments.
Futures open interest dipped 598 lots Monday to 155,522, with DecemberΆs down 1,111 lots to 798 and MarchΆs down 812 lots to 112,265.
Certificated stocks grew 9,891 bales to 232,698. Awaiting review were 12,088 bales for a possible total of 244,786.
World values as measured by the Cotlook A Index gained 115 points Tuesday morning to 84.90 cents. The premium to MondayΆs December futures settlement narrowed eight points to 6.44 cents.
