ChinaΆs Third Plenum failed to provide cotton policy hints. Specialist expects China to be careful with sales from reserves.
Cotton futures settled slightly ahead Wednesday after December had climbed above highs of the previous four sessions and March had traded inside its prior-day range.
December edged up nine ticks to close at 77.97 cents, around the lower third of its tight 79-point range from 78.50 to 77.71 cents, while March settled up 37 points to 78.59 cents, near the high of its 74-point trading span from 78 to 78.74 cents.
Volume slipped to an estimated 47,100 lots from 64,104 lots the previous session when spreads totaled 48,956, EFS 2,135 lots and EFP 26 lots. Options volume totaled 3,462 calls and 1,360 puts.
Looking for any fresh hint on a shift in ChinaΆs cotton policy, traders scanned news reports on conclusion of the Third Plenum, a four-day meeting in Beijing that was supposed to set the course for the worldΆs second-largest economy for the coming 10 years.
The communique that followed the meeting said market forces would play a “decisive” role in economic decisions. But there was a lack of specific details and nothing on future agricultural policy.
Sharon Johnson, cotton specialist with KCG Futures in Atlanta, said in a report last week that she expects the Chinese will be “extremely methodical and disciplined” with any major cotton policy change.
“To avoid another ΅unintended consequenceΆ as was the case 2011 forward, they will proceed very slowly with unraveling their procurement program,” she said.
And, she added, they will be “equally careful” in selling off state reserves, given the cost of the stockpile at the high price paid and the potential impact on world cotton prices.
“Since state reserves serve a purpose, a comfortable level will be maintained 2013-14 forward,” the veteran cotton specialist said.
A lot of talk has circulated in recent weeks about a resumption of cotton sales from ChinaΆs huge national reserves, now expected later this month or in December. The talk contributed to the unprecedented string of 13 consecutive losses in futures prices that was snapped last Wednesday.
In its latest supply-demand estimates, USDA cut ChinaΆs total ending stocks 500,000 bales from its September forecast to 57.81 million, 60% of the world carryout. The cut reflected a corresponding reduction in the crop.
Futures open interest fell 5,779 lots Tuesday to 173,674, with DecemberΆs down 15,100 lots to 38,879 and MarchΆs up 6,535 lots to 98,019.
Certificated stocks grew 9,375 bales to 190,507 on 9,748 newly certified bales and decertification of 373 bales. Awaiting review were 49,900 bales, including 12,420 at Galveston, 4,288 at Greenville and 33,192 at Memphis.
World values as measured by the Cotlook A Index dropped 20 points Wednesday morning to 84.55 cents. The index premium to TuesdayΆs futures settlements narrowed 111 points to 6.67 cents over December and 22 points to 6.33 cents over March.
