Fed keeps interest rates unchanged. Low mill inventories amid rising cotton consumption in China fuel hopes for 2016-17 import season.
Cotton futures finished mostly lower Wednesday, with nearby October settling slightly ahead and the rest of the board giving up earlier gains to close lower.
Benchmark December settled down 40 to 73.55 cents, in the lower quarter of its 156-point range from up 83 points at 74.78 to down 73 points at 73.22 cents. It extended early gains to touch a seven-session high, retreated to the dayΆs low, and couldnΆt get back above 74 cents.
October edged up 20 points to close at 73.83 cents, while March dropped 57 points to settle at 73.80 cents.
The Federal Reserve near the cotton close left interest rates unchanged and said near-term risks to the U.S. economic outlook have diminished, leaving the door open to raise rates later this year.
Volume declined to an estimated 23,708 lots from 28,323 lots the previous session when spreads accounted for 8,390 lots or 30%, EFP five lots and EFS two lots. Options volume totaled 2,160 calls and 3,778 puts.
Strong internal demand for government-held stocks offered in ChinaΆs daily auctions in the face of rising base prices has fueled questions in some quarters about whether its consumption may have been underestimated even after USDA raised its forecast substantially this month.
This has resurfaced with a Dow Jones Newswire report quoting Tobin Gorey at the Commonwealth Bank of Australia as saying in a note the China Cotton Association spurred hopes for the 2016-17 cotton import season when it reported that spinnersΆ inventories remain low despite the huge uptake in the last three months of reserve auctions.
“Sharp reductions in Chinese cotton planting mean that daily reserve sales are still falling short of domestic demand,” the report said. “Artificially high local prices are also reportedly hurting the bottom line for small and medium textile enterprises and high quality cotton is becoming increasingly hard to source.”
As the availability of quality cotton continues to dwindle, there will be increasing pressure for China to issue its mills additional import quotas at favorable tariff rates, Gorey said.
Australia is a major cotton exporter and would be expected to benefit from larger Chinese imports. The United States is the worldΆs leading cotton exporter, with foreign demand expected to account for 76% of its fiber crop market offtake in 2016-17.
All the cotton offered in ChinaΆs auctions lately has continued to find takers. The sales total has risen to 1.537 million metric tons or 7.06 million 480-pound bales. Rumors have persisted that Beijing might extend the reserve auctions, scheduled to conclude at the end of August, through late September.
The USDA this month boosted its estimate of 2016-17 cotton mill use in China by 1.5 million bales to 35 million, 31% of the world total. Global cotton consumption is projected at 111.6 million bales, 1.3% higher than in 2015-16 and 7% above the recent low of 2011-12 when world prices averaged near $1 a pound.
But USDA didnΆt see evidence of demand rising sufficiently on the heels of tight pre-auction supplies to boost its import forecast, leaving it unchanged at 4.5 million bales, also the same as in 2015-16.
Futures open interest grew 2,920 lots Tuesday to 236,323, with DecemberΆs up 2,166 lots to 180,431 and MarchΆs up 350 lots to 37,096. Certified stocks declined 2,861 bales to 114,719.
