Fed retained interest rate guidance. BrazilΆs 2014-15 cotton area expected to drop 11% from 2013-14 and crop to fall 12% to 6.9 million bales as prices reduce incentives, U.S. agricultural attacheΆ report says.
Cotton futures meandered in light dealings within the overnight range and eked out a marginal closing gain in benchmark December Wednesday.
December closed up 13 points to 65.68 cents, in the lower half of its 80-point range from down 15 points at 65.40 to up 65 points at 66.20 cents. Thinly traded October jumped 162 points to 69.90 cents as cert stocks continued to decline and March gained 19 points to 65.58 cents.
Traders digested news shortly before the close that the Federal Reserve retained guidance that short-term interest rates will remain near zero for a “considerable time” after it ends the bond buying program known as quantitative easing. The Fed plans to purchase $15 billion worth of mortgage and Treasury bonds in October and then stop the purchases.
Volume slowed to an estimated 10,300 lots from 17,377 lots the previous session when spreads accounted for 4,114 lots or 24% and EFS 362 lots. Options volume totaled 1,223 calls and 2,855 puts.
On the international scene, BrazilΆs cotton area for 2014-15 is expected to drop 11% from 2013-14 to a million hectares (2.48 million acres), says a U.S. agricultural attacheΆ report.
The post forecast the crop at 6.9 million bales, lower than it originally expected and down from 7.3 million projected by USDA in its September supply-demand report. The forecast is down 12% from the 2013-14 output of 7.8 million bales.
Domestic prices, which are lower than the minimum target price set by the Ministry of Agriculture, Livestock and Food Supply, have created disincentives for farmers who have the option to plant cotton for the second crop (“safrinha”), the post said.
Earlier in the year, owing to attractive global prices and strong global demand, many farmers initially were attracted to cotton production with the hope of higher profit margins.
However, because cotton is a high risk-reward crop, the current domestic price situation affects farmers who typically would plant cotton after the 2014-15 soybean harvest.
In this price environment, farmers who donΆt own machinery for cotton production are expected to plant another crop to avoid the high capital costs, level of risk, and stringent management practices.
Citing lower global demand, the post forecast exports at 2.2 million bales, down 4% from its slight upward revision for 2013-14 and down from USDAΆs projection of 3.7 million bales.
Higher inflationary pressures and decelerating growth in the local economy are expected to cut domestic consumption to 4.1 million bales, the post said. This is down from the postΆs 2013-14 estimate of 4.2 million bales but up from USDAΆs 4 million bales.
Futures open interest fell 1,278 lots Tuesday to 181,284, with DecemberΆs down 1,574 lots to 108,429 and MarchΆs up 253 lots to 55,790. Cert stocks declined 709 bales to 47,940.
World values as measured by the Cotlook A Index dropped 35 points Wednesday morning to 73.95 cents, narrowing the premium to TuesdayΆs December futures settlement by six points to 8.40 cents.
