July posted lowest close since April 7. A change in ChinaΆs cotton import policy could come late next year or at some point in 2019, based on progress of sales at the state reserve auctions, Cotton Outlook says.
Cotton futures closed lower for the third session in a row Tuesday, with July settling at its lowest finish since April 7.
July closed down 29 points to 76.02 cents, near the low of its 75-point range from up 35 points at 76.66 cents to down 40 points at 75.91 cents. It hit the high in the first 30 minutes of overnight trading and the low — its lowest intraday price since April 10 — late in the session.
December eased nine points to settle at 72.52 cents, just off the low of its narrow 48-point range from up 35 points at 72.96 to 62.48 cents. It printed a lower high for the fourth straight session. The low was five ticks above MondayΆs low.
July traded 18,116 lots and December 12,929 lots amid increased straddle activity. Thinly traded October settled down 12 points to 74.42 cents. The other contracts closed down 19 to 45 points.
Volume increased to an estimated 32,621 lots from 30,260 lots the previous session when spreads accounted for 16,834 lots or 56% and EFP 63 lots. Options volume rose to 4,891 lots (2,936 calls and 1,955 puts) from 3,390 lots (2,489 calls and 901 puts).
Many cotton industry people have wondered when China might have disposed of enough of the huge stocks accumulated during the three seasons from 2011-12 through 2013-14 to allow increased imports.
Since March, China had sold almost 1.3 million metric tons (5.971 million 480-pound bales) in its state reserve auctions by the end of May, Cotton Outlook said in its monthly international cotton market review.
This suggests that a reduction in stocks on par with the 2.6 million tons (11.942 million bales) achieved last year is within reach, it added.
While “destocking” has been underway, import quotas have been limited mostly to the 894,000 tons (4.106 million bales) under terms of ChinaΆs accession to the World Trade Organization at the turn of the century.
Once stocks have been reduced to a level deemed by the government to be “manageable”, imports from the world market would be expected to rise substantially, Cotton Outlook said, since China has an underlying structural deficit on the order of 3 million tons (13.779 million) bales.
“The shift to a less austere import policy will have unambiguously bullish implications for world prices, but its timing remains largely a matter for conjecture,” Cotton Outlook said.
While no official guidance has been forthcoming, progress of sales at the state reserve auctions “suggests that a change may come late next year or at some point in 2019.”
Before then, Cotton Outlook added, the market must negotiate a season during which, on current indications, an ample supply may exert downward pressure on prices.
Futures open interest declined 2,744 lots Monday to 237,936, with JulyΆs down 4,455 lots to 79,321, DecemberΆs up 1,327 lots to 131,613 and MarchΆs up 384 lots to 17,785.
Certified stocks dropped 1,826 bales to 440,044. There were 1,136 newly certified bales and 2,962 bales decertified. Awaiting review were 9,118 bales, including 1,934 at Galveston and 7,184 at Memphis.
