Cotton prices set a fresh nine-month low as data showing a tumble in Chinese stockpiling stoked concerns that the top importing country may have more domestic supplies to spare, at a time of growing crop hopes in major producers India and the US.
Cotton for December delivery touched 78.52 cents a pound in New York, the lowest for a spot contract since January.
The drop reflected growing concerns over a slowdown in demand from China, whose robust imports – a reflection of the large premium of domestic prices, supported by a controversial farmer support programme, over international values – have supported global values.
US sales of cotton in the week to October 3, the latest data available, fell 32% week on week to 44,000 running bales.
Chinese stockpiling slows
“Previously, where prices have fallen to 82-83 cents a pound, China has been a buyer – but not this time,” Keith Brown, at US cotton broker Keith Brown & Co, told Agrimoney.com.
“China has always been there to artificially keep the market up. But now that is the belief that China is going to restructure her imports.”
Some Chinese officials have voiced concern over the huge stocks built up by the country’s farm support programme, prompting talk of a review of the policy, which offers 20,400 yuan per tonne for cotton, equivalent to about $3,400 or tonne, or nearly twice New York futures prices.
One immediate impact has been a tightening of quality criteria.
Data on Monday from the China Cotton Information Centre showed purchases for state reserves reaching 731,050 tonnes so far in 2013-14, down 41% year on year, and implying more of the fibre available for the domestic market.
Meanwhile, India, the second ranked cotton exporter, “is looking at a record crop, and the proximity to China would likely strengthen her competition to the US”, the bigger shipper, Mr Brown said.
And hopes for production in the US itself are rising, with broker Doane on Monday highlighting “ideas that the US cotton crop estimate will increase significantly” when the US Department of Agriculture on November 8 reveals its next Wasde world crop report.
Rabobank, terming “lowball” the USDA’s current forecast of 12.9m bales, forecast a 14m-bale US crop, as it downgraded its forecast for New York cotton prices by up to 5.0 cents, seeing them fall from an average of 80.0 cents a pound in the current quarter to 75.0 cents a pound in the last three months of 2014.
December cotton stood at 78.69 cents a pound in late deals in New York, down 0.5% on the day, and 5.3% over the past week.