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DTN Cotton Close: Slightly Ahead After Inside Day

Ernst Undesser
By Duane Howell DTN Cotton Correspondent July 14, 2014

Mill use in China expected to grow faster in 2014-15 than in rest of the world for first time since the introduction of China’s price support program in 2011-12. U.S. upland cotton under loan fell to 302,511 bales.

Cotton futures settled with a modest gain in benchmark December in slow dealings Monday, snapping a string of nine consecutive lower closes.

December, which had closed higher only once in the previous 13 sessions, finished up 18 points to 68.30 cents, near the middle of its 107-point range from down 29 points at 67.83 cents to up 78 points at 68.90 cents. It traded inside Friday’s 200-point range.

Volume slowed to an electronically estimated 12,400 lots from 26,332 lots the previous session when spreads totaled 6,099 lots or 23% and EFP 33 lots. 


For the first time since the introduction of China’s price support program through stockpiling in 2011-12, USDA forecasts that mill use in China will grow faster than in the rest of the world.

The USDA’s July supply-demand estimates put China’s mill use at 36.5 million bales in 2014-15, up 2 million bales or 5.8% from 2013-14, and consumption in the rest of the world at 74.84 million bales, up 880,000 bales or 1.2%.

China’s price support program was introduced after world stocks fell to an extremely tight 47.05 million bales in the 2009-10 marketing year and world cotton prices jumped dramatically to average $1.65 per pound in 2010-11 and $1 a pound in 2011-12.

With China’s reserve policies supporting world prices beginning in 2011-12, global production has continued to outpace demand for cotton, leading to an all-time high world 2014-15 carryout projected at 105.68 million bales and a stocks-to-use ratio of 94.9%.

The program resulted in cotton prices in China rising substantially above world prices, according to analysts with USDA’s Foreign Agricultural Service in a circular on world markets and trade.

Consequently, yarn, fabric, textiles and apparel made from domestic cotton became less competitive against products containing man-made fibers or cotton from outside China. Mill use fell in China and grew in the rest of the world.

Much of recent declines in Chinese mill use — it totaled 50 million bales in 2009-10 — can be attributed to larger imports of lower-priced cotton yarn, which has supported mill use around the world.

The stronger yarn import demand in China is roughly equal to the total growth in mill use outside China. The major beneficiaries of this increased demand have been India, Pakistan and Vietnam, but even the United States has seen yarn exports to China more than double, albeit from a very small base.

With China shifting to a target price system in 2014-15 from the price support program, the full effect on yarn imports isn’t yet clear, FAS analysts say.

Meanwhile, U.S. upland loans outstanding fell 56,008 bales to 302,511 during the week ended July 7, according to the latest USDA figures.

Upland cotton under loan included 41,988 bales of Form A issued to individual growers and 270,125 bales of Form G issued to marketing cooperatives or loan servicing agents.

Futures open interest edged up 44 lots Friday to 149,898, with October’s down 11 lots to 366, December’s down 1,170 lots to 117,612 and March’s up 1,277 lots to 24,726.

Certificated stocks declined 1,481 bales to 382,412. There were 3,413 newly certified bales, 4,894 bales decertified and 12,167 bales awaiting review.

World prices as measured by the Cotlook A Index fell 50 points Monday morning to 83.35 cents. The premium to Friday’s October futures close narrowed 34 points to 14.61 cents.

Forward A Index values for 2014-15 dropped 35 points to 75.90 cents, narrowing the discount to the 2013-14 index by 15 points to 7.45 cents and the premium to Friday’s December futures settlement by 32 points to 7.38 cents.

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Ernst Undesser
By Duane Howell DTN Cotton Correspondent July 14, 2014