An overhang of growing cert stocks contributed to driving May to the biggest loss. ChinaΆs purchases for the season climbed to 26.7 million bales. Change in policies considered unlikely to cut world stocks.
Cotton futures tumbled to steep losses Tuesday, with old-crop deliveries losing ground to new-crop contracts.
Most-active May shed 195 points to settle at 87.35 cents, triggering sell stops on the way down and closing in the lower third of its 302-point range from up 27 points at 89.57 to down 275 points at 86.55 cents.
May had nearly halved a surge to a new intraday high for the move above 90 cents on Monday and had finished 18 points below its prior high settlement last Tuesday.
Maturing March closed down 170 points to 86.22 cents, July lost 156 points to 87.09 cents and December dropped 74 points to 77.51 cents. May closed below lows of the prior six sessions at its lowest finish since Feb. 6.
Volume increased to an estimated 27,200 lots from 24,241 lots the previous session when spreads totaled 5,743 lots or 24%, EFS 231 lots and EFP four lots. Options volume totaled 3,314 calls and 1,519 puts.
The overhang of still expanding stocks in deliverable position may have contributed to driving May to the sessionΆs steepest loss.
A lack of March delivery notices after owners of deliverable stocks had a chance to roll positions from the front month at near full carry prompted thoughts that the May-July spread also would move toward carry.
But the market initially saw May widen its settlement premium by 53 points on Monday and close 65 points over July as traders apparently viewed the lack of tenders on March as underscoring a tight U.S. old-crop balance sheet.
Meanwhile, China is reported to have bought 194,740 metric tons (894,425 bales of 480 pounds) for the state reserve last week to boost purchases for the season to 5.81 million tons (26.69 million bales).
The total was down 6% from 6.18 million tons (28.39 million bales) of government purchases a year ago. About 547,000 tons (2.51 million bales) have been sold for domestic use since November.
Speculation has persisted as to whether China will lower its offering rate for its massive, high-priced stockpile and whether it will sell some on the world market or confine the sales to domestic outlets.
The government purchase program of 2013-crop cotton is scheduled to end March 31, and there has been talk that the situation might be clarified about that time or soon thereafter.
ChinaΆs cotton policies, which have supported world prices above market-clearing levels, have been mainly responsible for world stocks having more than doubled between 2009-10 and 2013-14.
While China now intends to reduce support levels, world stocks are considered unlikely to fall in 2014-15. In fact, USDA analysts foresee world stocks hitting a new all-time high of more than 100 million bales.
The adoption of new policies in China will be gradual and world production and consumption responses will lag changes in policy and prices, USDA analysts said at the agencyΆs outlook forum last week.
The USDA projected that lower China domestic support levels, higher stocks outside China and falling grain and oilseed prices could reduce world cotton prices as measured by the Cotlook A Index to a five-year low.
Futures open interest increased 2,448 lots Monday to 165,727, with MarchΆs down 310 lots to 315 and MayΆs up 2,377 lots to 105,157. Cert stocks grew 1,403 bales to 253,663. Awaiting review were 5,124 bales.
The Cotlook A Index gained 100 points Tuesday morning to 95.65 cents. The index premium to MondayΆs May futures settlement widened five points to 6.35 cents.
