Cotton Reverses to Close Lower Near DayΆs Low

ChinaΆs demand for quality cotton will be partially met by imports, ICAC says, particularly given concerns over the quality of this yearΆs domestic crop.

U.S. cotton futures reversed off a new eight-session high to close in the red and near the dayΆs low on increased volume Tuesday.

Spot December settled down 72 points to 62.57 cents, trading within a 133-point range from up 56 points at 63.85 cents — highest since Oct. 22 — to down 77 points at 62.52 cents. March closed down 69 points to 62.44 cents.

Volume rose to an estimated 34,500 lots from 29,665 lots the previous session when spreads accounted for 13,478 lots or 45%, EFS 1,076 lots and EFP seven lots. Of the EFS trades, 1,000 lots were in December 2016. Options volume totaled 2,327 calls and 4,558 puts.

Demand for high quality cotton in China will be partially met by imports, particularly given concerns over the quality of this yearΆs crop, says the International Cotton Advisory Committee.

China has announced that its 2016 import quota would be limited to 894,000 metric tons or 4.1 million 480-pound bales, same as last year, in order to encourage consumption of domestically produced cotton.

Converted from metric tons to statistical bales, ICACΆs latest forecasts put ChinaΆs crop at 24.8 million and reserves held by the government at 50.52 million.

ChinaΆs total supply for 2015-16, excluding imports, is projected at 82.67 million bales, which would be more than double its estimated annual consumption, forecast at 35.37 million bales.

While ChinaΆs imports are projected to fall by 24% to less than 1.4 million tons or 6.43 million bales, it is expected to remain the worldΆs largest cotton importer in 2015-16.

However, ChinaΆs share of world imports has fallen from 55% in 2011-12 to 22% in 2014-15 and may reach only 17% this season, ICAC says. Instead, imports to other Asian countries are taking a larger share and will partially offset the decline.

Asian imports excluding China are forecast at 20.67 million bales, representing 60% of world imports projected at 34.31 million bales. In 2011-12, imports by the rest of Asia accounted for 31% of world imports.

Mill use in Asia outside China is forecast to rise by 4% to 55.12 million bales, accounting for 48% of world consumption projected at 115.05 million bales.

World consumption is estimated up a little over 2% from last year and production is expected to fall nearly 9% to 109.86 million bales, 5.19 million bales below mill use.

After reaching 58.33 million bales in 2014-15, ending stocks in China may decrease by 8% to 53.74 million bales, ICAC says, while stocks outside China are forecast to fall by 2% to 41.34 million bales.

The ICAC raised its world ending stocks forecast by 0.54% from last month to 95.21 million bales, down from 100.4 million bales in 2014-15.

World prices as measured by the Cotlook A Index are projected to average 73 cents this season, down a penny from last monthΆs forecast.

Futures open interest dipped 30 lots Monday to 199,706, with DecemberΆs down 2,700 lots to 102,516 and MarchΆs up 986 lots to 70,759. Cert stocks declined 2,924 bales to 43,216. There were 90 newly certified bales, 3,014 bales decertified and 4,866 bales awaiting review.