ICE cotton posted a second straight daily loss on Monday, as investors and merchants continued to sell after the US government’s crop report on Friday reignited concerns about a growing global surplus. The most-active July cotton contract on ICE Futures US fell 0.44 cent, or 0.5 percent, to settle at 86.04 cents per pound, after earlier falling to 85 cents a lb, the lowest price since May 2.
“The world balance sheet looks bearish,” said Nick Gentile, senior partner of commodity trading consultancy Atlantic Capital Advisors. “Some of the speculators are looking at the numbers but not factoring in what will happen if weather doesn’t cooperate and affects (US) yields.” The market continued to reel from the US Department of Agriculture’s forecast on Friday that global inventories will reach some 92.7 million 480-lb bales by end of the 2013/14 crop year as stocks in China climb amid a government stockpiling program.
That is almost 10 percent bigger than the current season’s surplus which is already a record high. Prices sank sharply on Friday on the report and open interest climbed by 1,507 contracts to 181,571, according to ICE data, seen as indication that new short positions were added. Additional pressure came in on Monday as producers sold material and traders hedged physical purchases post-report. A dip to as low as 85 cents a lb inspired buying, and cotton pared earlier losses.
Prices are still up almost 3 percent since May 1 though as worries over delayed plantings and drought conditions in Texas, the top producing state in the United States, sparked concern over upcoming supplies. The latest data showed speculators increased net long position for the first time in five weeks in the week ended May 7. Increased worries about oversupply triggered by the USDA data were seen capped by expectations that nearly two-thirds of the 92.7 million bales will be held within China and therefore are considered unavailable to the global market.
Beijing began building its reserves in 2011, paying above global prices to support farmers. “Until the market goes high enough to liberate these bales, we’re dealing with tight stocks,” Ron Lawson, a partner at commodity investment firm LOGIC Advisors. Excluding China, the global carryover is forecast to decline to the lowest since 1994/95.