March posted its highest finish since Aug. 19 and May, now with the largest open interest, settled on a new high close. “Robust demand” from other countries partly offset a dramatic drop in U.S. exports to China, FAS says.
Cotton futures rebounded from an early decline to close with strong gains Tuesday, discounting what had been viewed as a disappointment for the bulls in the U.S. supply-demand report the prior day.
March settled up 130 points to 88.67 cents, near the high of its 218-point range from down 71 points at 86.66 to up 147 points at 88.84 cents. It matched MondayΆs high and closed at its highest finish since Aug. 19.
May, which has taken over the open interest lead, also settled up 130 points, finishing on a new high close at 89.20 cents. July gained 103 points to 88.21 cents and December rose 57 points to 78.39 cents.
Volume dipped to an estimated 44,600 lots from 48,664 lots the previous session when spreads totaled 29,210 lots or 60%, EFS 1,707 lots and EFS 316 lots. Options volume totaled 8,444 calls and 3,705 puts.
“Robust demand” from other countries partially offset a dramatic drop in U.S. cotton exports to China for the first six months of the marketing year, USDAΆs Foreign Agricultural Service noted this week in a report on world markets and trade.
For example, import demand in Southeast Asia has shifted to U.S. cotton because of tightening exportable supplies from Southern Hemisphere countries, notably Brazil and Australia, where export estimates were reduced a combined 200,000 bales to 6.3 million.
U.S. exports to Vietnam and Indonesia have jumped 43% and 82%, respectively, and a smaller crop in Turkey has supported demand for additional supplies to meet rising consumption. Mexico has remained a steady export destination.
“Given that a large percentage of U.S. production is exported, and with such strong demand in these and other markets, ending stocks are forecast to tighten significantly,” FAS said.
Yet USDAΆs World Agricultural Outlook Board left its U.S. export estimate unchanged on the month at 10.5 million bales and ending stocks at 3 million bales. The carryout would be the third smallest since 1996.
Sharon Johnson, senior cotton specialist and introducing broker for KCG Futures in Roswell, Ga., found it a bit ironic that that USDA wasnΆt impressed enough with export sales-shipments data to raise its estimate but boosted its producer price forecast, a reflection of demand.
The USDA narrowed its projected range of the marketing year average price paid to producers to 74 to 78 cents from 72 to 77 cents forecast last month, with the midpoint rising to 76 cents from 74.50 cents.
“Until U.S. prices rise by enough relative to those of the world to shut demand for our cotton, sales will continue,” Johnson said. “We can also expect shipments to remain strong over the next several weeks.”
If U.S. prices rise too high against those of other exporters, sizable sales could be shut off and contracts that allow substitution of non-U.S. cotton could see sales cancelled or rolled into next year, she said. But itΆs too early to discuss that possibility, she added.
Futures open interest expanded 2,333 lots Monday to 176,814, with MarchΆs down 7,499 lots to 60,082 and MayΆs up 8,758 lots to 67,449. This marked the first time MayΆs open interest has exceeded MarchΆs.
Certificated stocks continued to grow, rising 8,515 bales to 235,816. There were 8,867 newly certified bales, 353 bales decertified and 1,700 bales awaiting review.
World values as measured by the Cotlook A Index were unchanged Tuesday morning at 94.15 cents. The premium to MondayΆs March futures settlement widened 10 points to 6.78 cents.
