Cotton Gives Back Some of Prior-Day Gain

U.S. agricultural attache forecasts for China include smaller crop, slightly larger domestic consumption and lower ending stocks as compared with USDAΆs August estimates. Imports projected down sharply.

Cotton futures finished mostly in the red on light volume Wednesday, completing an inside day in benchmark December and giving back roughly half the prior dayΆs gain.

December closed off 36 points to 62.92 cents, just off the low of its 77-point range from up 37 points at 63.63 to down 40 points at 62.86 cents. It hit the low in the fading minutes after a morning rally had stalled shy of the prior-day high (63.68) and a 33% retracement (63.72) of the 489-point decline from the Aug. 21 high to the Sept. 2 low.

A downturn in U.S. stocks from a rally earlier in the day and losses in oil may have weighed on cotton sentiment.

Volume slowed to an estimated 11,100 lots from 17,453 lots the previous session when spreads accounted for 5,081 lots or 29% and EFP 40 lots. Options volume totaled 1,427 calls and 598 puts.

Cotton production in China is forecast at 25.26 million bales by the U.S. agricultural attach in Beijing, down from 26 million projected by USDA last month and the postΆs estimate of 29.855 million in 2014-15.

The attache, whose estimate for last season is down from USDAΆs 30 million bales, said the crop forecast for 2015-16 is based on a 19% fall in planted area in response to the lower government price support program for cotton.

Domestic cotton consumption is forecast by the post at 34.5 million bales, compared with USDAΆs August projection of 34 million, which was unchanged from the 2014-15 use.

But the attache report said cotton imports are expected to plummet to 5.75 million bales, same as the USDA forecast last month, from 8.29 million bales in 2014-15, up marginally from USDAΆs 8.25 million.

The postΆs forecast is based on a tight import quota together with an estimated weak recovery in cotton use.

“Industry observers indicate that in the near future the government is unlikely to add any sort of import quota and imports of cotton yarn are expected to remain strong and satisfy ChinaΆs yarn use,” the report said.

The recent devaluation of the Chinese currency is expected to cast a shadow on imports in general, the report said, but added that its impact on cotton and yarn imports remains difficult to quantify.

The currency depreciation is expected to facilitate textile and apparel exports, which have continued to slip for five consecutive months and in total value were down 3.1% in the first half of 2015 from the previous year.

Imports of U.S. cotton are forecast at 2 million bales, down from 2.696 million last season. However, the U.S. share is reported likely to increase because the Chinese industry favors the quality of U.S. cotton.

The post projected ending stocks at 63.337 million bales, against USDAΆs 64.582 million, reflecting a stocks-to-use ratio of 183.85%, compared with USDAΆs 189.67%.

The governmentΆs minimum price cotton purchase policy over the past three years achieved high yields at the expense of quality, the attach said, particularly in lower fiber length and micronaire. In coming years, the report added, the industry will have to use the state cotton reserves, which already have experienced an overall decline in quality.

Futures open interest grew 661 lots Tuesday to 179,675, with DecemberΆs down 128 lots to 123,727 and MarchΆs up 646 lots to 42,876. Cert stocks declined 1,127 bales to 60,221.