ChinaΆs excess stocks reported “likely to be around for a while.” U.S. export commitments described as strong at 52% of the new USDA estimate.
Cotton futures settled mixed Friday as benchmark December finished with a fractional loss after nudging up to a new seven-week high.
December closed down nine points to 68 cents, right on the midpoint of its 97-point range from down 58 points at 67.51 to up 39 points at 68.48 cents. It posted its highest intraday price since July 22.
Nearby October closed down 18 points to 70.61 cents and March settled up 47 points to 67.43 cents. For the week, the market gained 453 points in October, 369 points in December and 329 points in March.
Volume slowed to an estimated 24,100 lots from a final 32,794 lots the previous session when spreads accounted for 10,858 lots or 33.1%, EFS 94 lots and EFP five lots. Options volume totaled 3,455 calls and 7,193 puts.
ChinaΆs price support and import policies have resulted in its stocks-to-use ratio surging to a record 180% in 2013-14, USDAΆs Foreign Agricultural Service says in a circular on world markets and trade.
In contrast, the ratio averaged 49% from 2002-03 through 2008-09. This would imply that current stocks are more than 45 million bales above average, equal to more than 2-1/2 years of U.S. production.
In an understatement, Chinese officials have said the stocks are abnormally high and should be reduced.
To return to “normal” levels, China would have to produce less, consume more, and-or reduce net imports. Production would have to drop by 25% from the current output for six years, consumption to rise by 20% for more than six years, or imports would have to be reduced to the World Trade Organization tariff rate quota level for 16 years.
Given the magnitude of this situation, implementing policies to reduce stocks will be a daunting endeavor. ChinaΆs excessive stocks thus are “likely to be around for a while,” FAS concludes.
ChinaΆs 2014-15 stocks-to-use ratio is projected at 170%. The USDAΆs World Agricultural Outlook Board forecast ChinaΆs 2014-15 stocks at 62.91 million bales, up from the 2013-14 carryout of 61.96 million, and consumption at 36.5 million bales, up from last seasonΆs 34.5 million.
In the U.S. supply-demand revisions, the 150,000-bale reduction from a month ago in 2013-14 ending stocks to 2.45 million bales resulted in the old-crop stocks-to-use ratio slipping to 17.4%, second smallest to 14.2% in 2010-11 since 1995-96 when the SUR also was 14.2%.
This perhaps could be viewed as lending credence to talk that ChinaΆs cancellation of 105,900 running bales of upland export sales in the latest reporting week could be attributed largely to a scarcity of uncommitted nearby supplies and origin switches to foreign growths. Yet traders also worried that the cancellations could be the forerunner of more to come.
In any event, despite the cancellation, U.S. 2014-15 export commitments remain strong at 5.078 million running bales, up 30% from a year ago and 52% of USDAΆs downwardly revised September forecast. A year ago, export commitments were 38% of final shipments.
Separately, U.S. new-crop upland loans outstanding rose by 5,157 bales to 32,822 during the week ended Sept. 8 and old-crop upland loans fell 3,150 bales to 19,498, USDA figures showed.
Futures open interest expanded 1,559 lots Thursday to 184,216, with DecemberΆs up 159 lots to 112,100 and MarchΆs up 853 lots to 55,429. Cert stocks were unchanged at 53,056 bales.
World values as measured by the Cotlook A Index gained 60 points Friday morning to 75.80 cents, narrowing the premium to ThursdayΆs December futures settlement by 35 points to 7.76 cents. The index gained 265 points for the week.
