ChinaΆs cotton reserve sales likely will impact imports and stocks, ICAC says. Initial sales reported at 30,342 metric tons or 139,358 bales.
Cotton futures closed sharply lower Tuesday, reversing off a five-session high at a resistance area amid steep losses in U.S. equities on fears of a slowing global economy, a rebound in the U.S. dollar index and a lot of red in commodities.
Most-active July settled down 131 points to 63.06 cents, in the lower half of its 249-point range from up 28 points at 64.65 to down 221 points at 62.16 cents. It closed 90 points off the dayΆs low but still finished below lows of the prior six sessions.
December finished down 107 points to 62.35 cents, a nine-session low close and also in the lower half of its 217-point range from 63.69 to 61.52 cents.
Commencement of sales from ChinaΆs huge reserves may have contributed to the cotton selloff.
Volume quickened to an estimated 32,727 lots from 20,880 lots the previous session when spreads accounted for 4,628 lots or 22%. Options volume totaled 7,171 calls and 8,582 puts.
ChinaΆs ending stocks are expected to fall by 7% this season and 10% in 2016-17 amid sales of its reserve stocks, restrictions on its cotton imports and its declining production, the International Cotton Advisory Committee says in a monthly report.
The ICAC projected ChinaΆs ending stocks at 12 million metric tons (55.12 million 480-pound bales) this season, which would be the first decrease since 2010-11, and 10.9 million tons (50.06 million bales) in 2016-17.
Stocks outside China are forecast to decrease by 7% to 8.4 million tons (38.58 million bales) by the end of 2015-16 but to increase by 2% to 8.7 million tons (39.96 million bales) in 2016-17, ICAC said.
China sold a reported 30,342 tons (139,358 bales) Tuesday morning as the auctioning of reserve stocks got underway. The sales will continue through August, ending before the harvest of the new crop. Daily volumes will be capped at 50,000 tons (229,646 bales), similar to the average offerings of 2014-15.
A price floor will be updated weekly, using an average of domestic spot prices and international physical values as reported by the Cotlook A Index. The government has indicated it also may purchase a limited quantity for its reserves, depending on actual sales the previous season, with a focus on high quality.
As ChinaΆs cotton imports have fallen, so have world imports. In 2015-16, world cotton imports are expected to decline by 3% to 7.43 million tons (34.13 million bales) and ChinaΆs imports by 40% to 1.1 million tons (5.05 million bales), ICAC said.
After contracting by 9% to 31.2 million hectares (one hectare equals 2.471 acres) in 2015-16, world cotton area is projected to expand by 1% in to 31.4 million hectares as declining prices for competing crops this season encourage a return to cotton in 2016-17 despite low prices.
With higher average yields, world production could increase by 4% to 22.96 million tons (105.45 million bales) in 2016-17, ICAC added. Cotton area in India, the worldΆs largest producer, is forecast up 4% to 12.4 million hectares and production to rise 10% to 29.85 million bales).
After falling 3% in 2015-16, world consumption is projected about steady in 2016-17 at 23.77 million tons (109.17 million bales). Mill use in China, the worldΆs largest consumer is projected down 5% to 7.1 million tons (32.61 million bales) and will likely decrease an additional 5% to 6.8 million tons (31.23 million bales) in 2016-17, ICAC said.
The ICAC estimates suggest a world production shortfall of 3.73 million bales in 2016-17, compared with 7.77 million bales in 2015-16.
Futures open interest expanded 2,094 lots Monday to 194,427, with MayΆs down four lots to 65 and JulyΆs up 1,068 lots to 114,958. Cert stocks grew 594 bales to 58,340. There were 1,044 newly certified bales and 450 bales decertified.
