U.S. crop estimates for 2013-14 span wide range. Crop hike and corresponding gain in exports expected for 2012-13. Growing tightness of global free supplies has supported world prices.
Cotton futures rallied from early losses to settle Thursday with modest gains and a new high close since early April.
Spot July settled up 24 points to 87.92 cents, in the upper third of its 179-point range from down 107 points at 86.61 to up 72 points at 88.40 cents. This was its highest close since April 5.
December also closed up 24 points, settling at 87.01 cents to finish in the upper reaches of its 130-point range from 85.95 to 87.25 cents.
Volume slipped to an average of 21,200 lots from 26,000 lots the previous session when spreads totaled 6,294 lots or 24% and EFP 324 lots. Options volume totaled 5,087 calls and 3,773 puts.
Most attention in the USDA supply-demand reports on Friday is expected to focus on the first official estimates for 2013-14, with an increase of 200,000 to 300,000 bales foreseen in the U.S. 2012-13 crop and a corresponding hike in exports.
A Dow Jones survey of cotton analysts showed U.S. estimates for 2013-14 spanning wide ranges and averaging 15.5 million bales for the crop, 12 million for exports and 4 million for ending stocks. The USDAΆs 2012-13 estimates last month included 17.29 million bales for the crop, 13 million for exports and 4.2 million for ending stocks.
Mostly modest changes appear generally expected in 2012-13 world estimates, although another increase to a new all-time high in global ending stocks wouldnΆt be surprising. A further increase is expected in the 2013-14 world carryout.
The report will be released at 11 a.m. central time. If the past four months carry any weight, it may take more than 2-1/2 hours from the new release time until the close for traders to grasp the full impact, said Sharon Jonson, cotton specialist with Knight Futures in Atlanta.
With old-crop and new-crop data to comb through, “any immediate reactions may be just that until the nuances of the report are understood,” Johnson commented.
World stocks have jumped dramatically over the two previous seasons to a record 82.5 million bales projected by USDA last month, up 18% from 2011-12. Recent strength in world prices encouraged production but discouraged demand, USDA analysts pointed out in an outlook report.
ChinaΆs policies of supporting domestic cotton prices above world prices also have contributed considerably to the stock buildup there and consequently to the global supply, USDA analysts noted.
The April report projected a remarkable jump in 2012-13 global ending stocks of 35.8 million bales or 77% in only three years.
While world stocks are rising for the third straight season, the extraordinary stock growth in China has occurred the last two seasons. In 2010-11, ChinaΆs stocks hit a 15-year low, but ensuing policies — still in effect — promoted a rebuilding of strategic reserves through both domestic purchases and imports.
The latest USDA forecast put ChinaΆs 2012-13 ending stocks at 45.6 million bales, against only 10.6 million just two years earlier.
Although U.S. stocks have risen since 2010-11, the U.S. share of global stocks has been maintained at roughly 5%. However, with China holding an expected 55% of world stocks in 2012-13, according to USDA, stocks in the rest of the world were forecast to decline more than 10%.
Because most of ChinaΆs stocks are presently unavailable to the market, the growing tightness of global free supplies has supported world prices.
Futures open interest expanded 4,517 lots Wednesday to 177,523, with JulyΆs up 3,449 lots to 118,886 and DecemberΆs up 1,033 lots to 55,758.
Certificated stocks grew 2,911 bales to 495,558. There were 2,917 newly certified bales, six bales decertified and 17,858 bales awaiting review.
World prices as measured by the Cotlook A Index gained 40 points Thursday morning to 95 cents. The premium to WednesdayΆs July futures settlement narrowed 13 points to 7.32 cents.