Cotton Regains Much of Prior DayΆs Loss

A larger reduction in world stocks is foreseen in Cotton OutlookΆs latest supply-demand estimates. ChinaΆs factory activity reported at three-year low.

U.S. cotton futures settled higher Tuesday, with most-active March recapturing much of the previous dayΆs loss on inside-range price action.

March settled up 90 points to 63.54 cents, near the high of its 89-point range from up nine points at 62.73 to up 98 points at 63.62 cents. Weakness in the U.S. dollar index may have contributed to support along with a larger reduction foreseen in world stocks.

Maturing December also gained 90 points, settling at 62.20 cents, while May closed up 78 points to 64.21 cents.

Volume declined to an estimated 23,300 lots from 25,010 lots the previous session when spreads accounted for 5,092 lots or 20%. Options volume totaled 2,109 calls and 3,678 puts.

World cotton futures settled up 126 points to 72.56 cents in the May contract, widening the premium over the U.S. May futures settlement by 48 points to 8.35 cents. The basis quality of the world contract is color 31 (middling), staple 36, leaf 3, strength 27 and mike 3.5-4.9.

A reduction of 971,000 metric tons (4.46 million 480-pound bales) in 2015-16 world ending stocks from 2014-15 is projected in Cotton OutlookΆs latest global supply-demand estimates, compared with 768,000 tons (3.53 million bales) indicated a month ago.

The downturn still is expected mainly in China, where mill use of 7.05 million tons (32.38 million bales) is forecast to exceed production of 5.01 million tons (23.01 million bales). The crop estimate is down 370,000 tons and the mill use forecast down 300,000 tons from a month ago.

Consumption and production estimates for China for last season were shaved 100,000 tons each to 7.25 million (33.3 million bales) and 6.29 million (28.89 million bales), respectively.

World production is forecast down 555,000 tons (2.55 million bales) from the previous projection to 22.42 million (102.97 million bales). An increase in AustraliaΆs crop was more than offset by lower output in major producing nations, including China, India and Pakistan.

The global output is projected to fall 12% from 25.48 million tons (117.03 million bales) now estimated for last season.

For the first time, world cotton consumption also is forecast to decrease, albeit modestly, during the current season. Mill use is forecast at 23.391 million tons (107.43 million bales), down from 23.743 million tons (109.05 million bales) foreseen last month and 23.56 million tons (108.21 million bales) consumed last season.

Separately, activity in ChinaΆs manufacturing sector contracted for a fourth straight month to a three-year low, official data showed, indicating persistent economic sluggishness in the worldΆs second largest economy — and largest cotton consumer — despite stimulus measures.

The official manufacturing purchasing managersΆ index fell to 49.6 in November from 49.8 a month ago. A reading below 50 suggests a contraction in activity and a reading above signifies an expansion.

U.S. futures open interest increased 723 lots Monday to 178,416, with DecemberΆs down 11 lots to 42, MarchΆs down 250 lots to 134,294 and MayΆs up 672 lots to 25,209. Cert stocks grew 1,451 bales to 65,409.