December closed on highest finish since June. Adverse seasonal conditions expected to reduce AustraliaΆs cotton production and exports in 2014-15. Export prices forecast to decline by 15%.
Old-crop cotton futures finished with triple-digit gains, led by soon-to-mature May, and December settled on a new high close for the move Tuesday.
Most-active July gained 104 points to close at 93.25 cents, its highest finish since March 31 and the upper quarter of its 134-point range from down six points at 92.15 cents to up 128 points at 93.49 cents.
May closed up 132 points to 91.01 cents, a 224-point discount to July, while December settled up 50 points to 82.49 cents, highest since June 17, 2013. First notice day for May is Thursday.
Export inquiries after two days of old-crop losses along with scale-down mill fixations may have contributed to an underpinning.
Volume rose to an estimated 20,900 lots from 15,343 lots the previous session when spreads totaled 7,146 lots or 47% and EFP 632 lots. Options volume totaled 8,263 calls and 5,881 puts.
Traders noted that the U.S. agricultural attache reported from Canberra that adverse seasonal conditions are expected to reduce AustraliaΆs cotton production and exports in 2014-15.
With China remaining pivotal in the world cotton market, prices for Australian cotton exports are forecast to decline by 15% as China gradually reduces its stockpile, the report said. ChinaΆs stockpile is estimated at 61% of record high global stocks.
AustraliaΆs crop is projected at 4.128 million bales by the post, down from the attache estimate of 4.31 million in 2013-14, and exports at 4.11 million, down from 4.475 million.
Australia, the worldΆs third largest cotton exporter behind the United States and India, ships about 95% of its domestic crop to foreign customers, mainly to China, Indonesia and Thailand. China has accounted for about three-fourths of the exports.
Cotton is predominantly irrigated and produces the worldΆs highest yields, helped also by the use of genetically modified varieties and effective management. The cotton area is estimated at 380,000 hectares (one hectare equals 2.471 acres), down from 392,000.
Australia has developed new strains of cotton to suit local conditions, the report said. The cotton research and development program is funded by cotton growers who pay a compulsory $2.25 per bale, matched by the Australian government.
Low rainfall reduced the average storage level of public irrigation dams in cotton growing regions to 40% of capacity by February, compared with nearly 70% a year earlier, the report said. By early April, however, storage levels in the Murray Darling Basin reached 50%, increasing available flows to irrigated cotton.
Futures open interest declined 1,538 lots Monday to 172,682, with MayΆs down 2,917 lots to 7,704, JulyΆs up 182 lots to 105,436 and DecemberΆs up 1,064 lots to 53,718.
Certificated stocks continued to grow, rising to 292,117 bales, largest since July 23, 2013 when deliverable stocks totaled 330,115 bales. Awaiting review were 4,296 bales. As of Monday, 2013-crop cotton made up 91% of the stocks.
World values as measured by the Cotlook A Index dropped 85 points Tuesday morning from last ThursdayΆs close to 93 cents following the long holiday. The premium to MondayΆs July futures settlement narrowed to only 79 points.
The Forward A Index for 2014-15 gained 50 points to 90.10 cents, narrowing the 2013-14 premium by 135 points to 2.90 cents and the premium to MondayΆs December futures settlement to 8.11 cents.
