Talk circulated of a possible March taker or takers. World mill use and production forecasts have fallen sharply from USDA’s February 2015 Outlook Forum. Vast bulk of the decline in demand came from China.
Cotton futures settled mixed Wednesday as traders continued to digest this weekΆs supply-demand forecasts and talk circulated of a possible taker or takers positioning for any March deliveries.
- Spot March closed up 24 points to 58.88 cents, near the high of its 59-point range from down 29 points at 58.35 to up 30 points at 58.94 cents. A narrowing of the March discount to May contributed to talk of a possible taker or takers along with a strong basis for high grades. March options expire Friday and first notice day is Feb. 23.
- May settled off a single point at 59.23 cents, July finished down seven points to 59.81 cents and December closed up a tick to 60.12 cents.
- Volume slipped to an estimated 62,809 lots from 71,784 lots the previous session — largest since Nov. 10, 2014 — when spreads accounted for 43,760 lots or 61% and EFP 251 lots. Options volume totaled 5,111 calls and 8,663 puts.
World 2015-16 cotton demand prospects declined much more than expected in the monthly supply-demand report, falling 1.34 million bales to 109.6 million, and have skidded from 116 million bales projected at USDAΆs February 2015 Outlook Forum.
The USDAΆs Foreign Agricultural Service in a markets and trade report compared this monthΆs updated global cotton production and consumption estimates with projections made at the Outlook Forum a year ago.
The difference in consumption is equivalent to a change from a growth rate of plus 4.2% to minus 0.6%. The vast bulk of this change came from declining expectations of cotton use in China, still the worldΆs largest consumer of the natural fiber.
Cotton consumption forecasts for China fell 5.5 million bales from last February to 32 million, including a drop of 500,000 bales from the month-ago projection.
Outside China, consumption forecasts have fallen fewer than a million bales since the February forum, and indeed USDA continues to forecast 0.4% growth from 2014-15 for the world less China.
“The worsening outlook for Chinese cotton use stems from low state reserve sales, continuing import restrictions, declining polyester prices, and a weakening outlook for Chinese economic activity,” FAS said.
China has fallen into third place in the world rankings of cotton importers, behind Bangladesh and Vietnam. The latest 2015-16 import forecast for China is 5 million bales, down 500,000 bales from a month ago and from 8.28 million bales in 2014-15.
ChinaΆs imports plunged from a record 24.53 million bales in 2011-12 when a cotton subsidy program — since scrapped — left internal prices far above international values and encouraged mills to buy foreign growths.
Cotton stocks in China are estimated at 64.52 million bales, 200.4% of the countryΆs projected consumption plus 200,000 bales of exports and 62% of world stocks now forecast at the second largest on record.
Forecasts since last February have deteriorated even more for production than for consumption. Production forecasts have fallen steeply by 15% in China and 9% elsewhere, with PakistanΆs crop more than 25% lower than the February outlook projection.
Despite worsening consumption forecasts, the production decline implies that “destocking” has continued at an even faster rate than initially forecast, FAS said. Global stocks are forecast to tighten by 8.1 million bales rather than 3 million.
Futures open interest grew 2,372 lots Tuesday to 200,208, with MarchΆs down 5,920 lots to 75,918 and MayΆs up 5,083 lots to 68,132. Cert stocks grew 367 bales to 27,897. There were 388 newly certified bales and 21 bales decertified.
