An expected global crop shortfall could be closed by good weather in a couple of major producing countries, Cotton Inc. says. China expected to maintain low import quotas for another year or two.

Cotton futures extended losses across the board for the third session in a row Tuesday, falling to new lows since January in July and December on stepped-up volume.

July closed down 65 points to 74.48 cents, in the lower quarter of its 83-point range from up a point at 75.14 to down 82 points at 74.31 cents, its lowest intraday price since Jan. 24. It has finished on the plus side only once in the last eight sessions.

December settled down 62 points to 71.82 cents, just off the low of its 67-point range from down two points at 72.42 to down 69 points at 71.75 cents, its lowest price since Jan. 31.

Improved U.S. crop ratings and a buildup in 2017-18 world stocks outside China projected by USDA along with the forecast for the largest U.S. carryout next season in nine years contributed to the selling.

Volume quickened to an estimated 51,422 lots from 43,851 lots the prior session when spreads accounted for 28,914 lots or 66%, EFS 2,294 lots and EFP 348 lots. Options volume rose to 11,764 lots (4,912 calls and 6,852 puts) from 10,454 lots (4,897 calls and 5,557 puts).

A 1.8-million-bale 2017-18 global crop shortfall foreseen in USDAΆs June supply-demand report, down from 7.6 million bales estimated for 2016-17, is within a margin of error that could be closed by good weather in a couple of major producing countries, says Cotton Inc.

“Whether or not the world ends up with a slight surplus or a slight deficit of production relative to mill use will not significantly alter key assumptions involving distribution of ending stocks inside and outside China,” CI said in its monthly economic letter.

ChinaΆs stocks of 39.3 million bales are expected to fall 40% from the peak of 66.9 million bales in 2014-15. Yet the stocks would remain nearly double the near 20 million bales common in the mid-2000s when ChinaΆs mills were consuming 50 million bales. Mill use in 2017-18 is forecast of 38 million bales.

Stocks in the rest of the world outside China are projected to rise 20% to a new record of 48.4 million bales from 40.9 million.

With another large drawdown expected in government-controlled stocks, ChinaΆs 2017-18 ending stocks could fall to 105% of mill use from 130% in 2016-17, CI said. That still would be a tremendous amount of cotton in storage.

For that reason, China could be expected to maintain import quotas at low levels for another crop year or two until the stocks-to-use ratio drops to levels closer to historical averages. Throughout most of the 2000s, CI noted, ChinaΆs SUR was near 50%.

However, China has a production deficit that CI said can be expected to hold at more than 10 million bales. As a result, China eventually will need to lift import quotas. The market just doesnΆt know when. It also isnΆt known how that would be done.

“It is possible (Beijing) could jump directly from current volumes near 4 million bales to those over 10 million bales that were common in the past,” CI said. “It is also possible the government could feather in the increases, lifting restrictions incrementally over a period of several years.”

ChinaΆs import quota is allocated on a calendar year basis. Last crop year, CI noted, the market got the news in late summer. Whenever an announcement is made for 2018, it could be expected to affect global price direction.

Futures open interest expanded 1,086 lots to 234,071, with JulyΆs down 6,429 lots to 51,842, DecemberΆs up 6,237 lots to 151,106 and MarchΆs up 1,262 lots to 21,233.

Certified stocks grew 2,607 bales to 458,935. There were 2,923 newly certified bales and 316 bales decertified. Awaiting review were 8,232 bales, including 1,056 at Galveston and 7,176 at Memphis.