Fed raises interest rates and expects increases in 2017. Slowdown expected in U.S. weekly cotton export sales. Total demand for U.S. cotton — unchanged on the month — forecast at the largest since 2012-13.
Cotton futures slid to session lows in the late going and closed at or near there as U.S. dollar index futures initially surged after the Federal Reserve said it would raise interest rates for the first time in a year and hinted at more next year.
March lost 57 points to close at 71.47 cents, trading on light volume within a 99-point range from up 26 points at 72.30 to down 73 points at 71.31 cents. It traded within the prior sessionΆs 124-point range.
May settled down 56 points at 71.64 cents, while December 2017 closed down 64 points on its low tick of the day at 69.25 cents.
Fed officials said they would nudge up the federal-funds rate by a quarter percentage point to between 0.50% and 0.75%, a move that could cause other household and business borrowing costs to rise as well.
They also indicated they see a brightening economic outlook and expect to raise short-term rates next year by an additional 0.75 percentage point — likely in three quarter-point moves.
Volume slowed to an estimated 16,443 lots from 26,299 lots the previous session when spreads accounted for 8,312 lots or 32%, EFP 38 lots and EFS 31 lots. Options volume totaled 2,832 calls and 1,512 puts.
Traders look for a slowdown in U.S. export sales in USDAΆs report on Thursday for the week ended Dec. 8. Net U.S. upland sales the previous week hit a marketing year high of 405,200 running bales and shipments also were a crop year high at 229,700 RB.
Upland sales the last four-weeks have averaged 269,200 RB and shipments have averaged 147,800 RB. Sales had been running well above the pace needed to match last monthΆs export estimate but shipments had lagged until nearing the target on the jump to the largest since June 30.
While USDAΆs December estimate of overall U.S. 2016-17 cotton demand remained at 15.5 million bales, exports were raised 200,000 bales to 12.2 million and domestic mill use was cut 200,000 bales to 3.3 million bales.
Market offtake is expected to top last seasonΆs 12.6 million bales and reach the largest since 2012-13 when it was 16.53 million bales on exports of 13.03 million and domestic mill use of 3.5 million.
A larger, higher quality U.S. crop is expected to push exports to the highest since 2012-13, USDA says. The U.S. share of global trade is forecast to reach 34.5%, up from 26% last season.
Slower U.S. mill use during the first three months of the season and anecdotal evidence about prospects for the next several months indicated domestic consumption would fall short of last seasonΆs 3.45 million bales.
The 2016-17 projection would match the low of 2011-12, which is a stark contrast to a high of 11.35 million bales consumed by U.S. textile manufacturers in 1997-98.
Despite adequate supplies of cotton, competition with synthetics for fiber share in apparel and other textile products remains the major limiting factor for cotton mill use.
As a result of the larger crop projected this month, the U.S. carryout is forecast at 4.8 million bales, up 200,000 bales from the November estimate and a million bales above beginning stocks. Both the stocks and the stocks-to-use ratio — estimated at 31% — would be the highest since 2008-09.
Futures open interest increased 1,829 lots Tuesday to 252,798, with MarchΆs up 1,514 lots to 178,135 and MayΆs up 250 lots to 40,525. Cert stocks grew 343 bales to 77,552. There were 1,311 newly certified bales and 968 bales decertified. Awaiting review were 2,191 bales at Greenville, S.C.
