July staged outside-range reversal. World ending stocks-to-use ratio minus the Chinese reserve could pose potential challenge next season, ICAC says.
Cotton futures surged in the late going and completed an outside-range reversal to the upside Wednesday.
July settled up 53 points to 87.68 cents, its highest finish since April 5. It rallied from down 176 points at the morning low of 85.39 cents, below lows of the prior three sessions, to a 96-point gain at 88.11 cents and settled in the upper quarter of the 272-point range.
The May contract expired 148 points under July, closing up 19 points at 86.20 cents. December advanced 80 points to close at 86.77 cents, in the upper reaches of its 280-point range from down 161 points at 84.36 to up 119 points at 87.16 cents.
Concerns mounted that a small prospective early crop in South Texas combined with delayed U.S. plantings and robust current-crop export sales could prompt a supply scramble ahead of the volume movement of the new crop, analysts said.
The USDA is expected to raise the U.S. 2012-13 export forecast along with a hike in the crop estimate in its supply-demand reports on Friday.
Volume increased to an estimated 26,000 lots from 18,392 lots the previous session when spreads totaled 5,020 lots or 27% and EFP 267 lots. Options volume totaled 6,890 calls and 1,978 puts.
World ending stocks now are forecast to climb to 83.82 million 480-pound bales in 2013-14 by the International Cotton Advisory Committee from 82.22 million projected for 2012-13.
Stocks of that magnitude by July 2014 would represent approximately nine months of world mill use, according to ICACΆs updated supply-demand estimates.
However, ICAC said in its May report, the world stocks-to-use ratio minus the Chinese reserve is expected to drop to an estimated 30% from 37% this season. This, ICAC said, could pose “a potential challenge to the global supply of cotton next season.”
Assuming China adheres to the current reserve policy, ICAC said, the Cotlook A Index of world values is projected to average 122 cents per pound in 2013-14 and 88 cents in 2012-13. These compare with averages foreseen a month ago of 118 cents and 90 cents, respectively.
The ICAC projected world production at 113.03 million bales in 2013-14, down from 120.98 million now foreseen for 2012-13, and pegged mill use at 111.38 million bales, up from 108.90 million this season.
Global production is expected to decline 5% in 2012-13 from the previous season, it said, and a further decline of 6% is forecast for 2013-14. Mill use is estimated to rise 7% this season and an additional 2% next season.
Mill use is expected to fall to 36.74 million bales in 2013-14 from 38.12 million in 2012-13 as the national cotton policy remains unclear, while imports are forecast to fall to 13.78 million bales from 16.99 million.
“Because of the Chinese national cotton reserve policy, a seismic shift in the location of world cotton use is underway,” the ICAC said. “Decreased mill use in China will be partially offset by increases in India, Bangladesh, Turkey and Pakistan.”
Futures open interest expanded 2,371 lots Tuesday to 173,006, with MayΆs down 32 lots to 22, JulyΆs up 1,658 lots to 115,437 and DecemberΆs up 697 lots to 54,725.
Certificated stocks declined 1,045 bales to 492,647. There were 431 newly certified bales, 1,476 bales decertified and 17,381 bales awaiting review.
The Cotlook A Index dropped 20 points Wednesday morning to 94.60 cents, nudging the index premium to TuesdayΆs July settlement out four points to 7.45 cents.
