Cotton futures surged to new contract highs Wednesday just as some traders were beginning to think that overbought readings were about to become more assertive under year-end influences.
Spot March jumped 152 points to settle at 78.95 cents, just off the high of its 174-point range from down 18 points at 77.25 to up 156 points at 78.99 cents. It has posted or matched new contract highs four sessions in a row, finishing lower on two of those days.
May finished up 140 points to 78.92 cents, near the high of its 164-point range from 77.35 to 78.99 cents, and July closed up 123 points to 79.05 cents, trading within a 153-point range from 77.56 to 79.09 cents.
The other contracts settled up 26 to 57 points, with December 2018 on the low end at 74.03 cents after hitting a new contract high at 74.10 cents. The market hit new contract highs as far out as March 2019.
Volume increased to an estimated 27,379 lots from 12,599 lots the prior abbreviated session when spreads accounted for 3,812 lots or 30%, EFS 127 lots and EFP 50 lots. Options volume rose to 10,524 lots (7,315 calls and 3,209 puts) from 3,694 lots (1,938 calls and 1,756 puts).
Technically oriented buying quickened and contributed to the gains when there was a lack of follow-through to the reversal off new contract highs to close lower the prior session.
Ongoing uncertainty about the extent of pink bollworm damage to the crop in India, the world’s largest cotton producer, also contributed. Prices for India’s Shankar-6 cotton reached new ex-gin highs.
The Maharashtra state government in India is reported to have begun collecting samples from major seed distributors to assess seed quality amid allegations that poor quality seeds may have been a factor in the crop damage. The Ministry of Textiles is quoted as now estimating the Maharashtra crop is down from last year despite a larger planted area.
In its world supply-demand estimates earlier this month, USDA sharply reduced India’s ending stocks to 11.7 million bales from 13.2 million. This partly reflected a 500,000-bale cut to 29.5 million in production, partly offset by a 300,000-bale reduction to 4.3 million in exports.
The USDA change was driven mainly by revisions to 2017-18 beginning stocks and production. India had revised its estimates of cotton consumption back to the 2015-16 marketing year showing higher use than USDA’s data. Those revisions were concentrated on “non-mill use,” indicating consumption outside usual commercial and industrial channels.
Many market observers and analysts have suggested for some time that India’s stocks were tighter than USDA reports indicated, but USDA said uncertainty had persisted about which component of the balance sheet might be incorrect. The revised consumption data from India’s Cotton Advisory Board lowered stocks nearer trade-consensus levels via higher consumption.
In all, the revised data suggested an aggregate of about 1.2 million bales more consumption over the three years than indicated in last month’s USDA estimate. This resulted in a significant impact on the estimated stocks-to-use estimate for India, cutting it to about 40% from 45%.
Those changes were large enough to impact the global balance sheet as well, with revisions in India accounting for half of lower 2017-18 ending stocks. Most of the remainder was due to Pakistan, owing to its greatly reduced crop, or higher exports from Australia, Brazil and the United States.
A decision by Pakistan to permit cotton imports from India is said to have helped boost India’s cotton prices. Pakistan also has been a major buyer of U.S. cotton, having purchased 1.157 million running bales as of Dec. 14 for shipment this season.
Futures open interest gained 717 lots to 274,603 on Tuesday, with March’s up 687 lots to 173,996 and May’s down 124 lots to 49,991. Certified stocks were unchanged at 47,601.