Cotton Futures Rally, Textile Mill Buying Moves to the Sidelines
Cotton futures at the Intercontinental Exchange (ICE) in New York made an impressive run in the marketing week ended April 21, appearing to ride the coattails of futures trading at China’s Zhengzhou Commodity Exchange (ZCE). September cotton, the most actively traded contract at the ZCE, gained more than 14 percent on speculative buying during four sessions this week. The buying was triggered by a perception of tightening supplies in China due to the delayed commencement of sales from the country’s cotton reserves. However, the perception should be temporary because the reserves consist of more than 50 million bales.
Aided by the rising prices at the ZCE, July cotton, the lead month at ICE, gained 316 points this week. Looking farther back, the contract has now gained almost 10 cents per pound since Feb. 29. December cotton gained 268 points this week to settle at 62.70 cents on April 21. The rising market sent mill buyers to the sidelines.
Friday, April 15
The marketing week began with a negative tone as July cotton immediately moved lower when ICE trading began following the announcement of details about China’s reserve sales policy. The contract fell to a low of 59.12 cents but managed to recoup some of its losses before the close of trading and settled at 60.02 cents, down 83 points. The December contract followed July’s lead and settled 81 points lower at 59.21 cents per pound.
Monday, April 18
The market took off following the weekend as a surge of buying sent futures soaring when news from ZCE arrived. All ICE contracts finished with triple-digit gains. July cotton reached a high of 62.45 cents and traded on strong gains the entire session. The contract settled at 62.23, up 221 points. It was the first settlement above 62.00 cents since Feb. 3. December cotton settled 179 points at 61.00 cents.
Tuesday, April 19
The rally eased a bit, although buyers remained active. July began the session trading sideways but slowly worked higher, reaching 63.22 cents, its best level since Jan. 25. The contract settled at 63.07, up 84 points. December settled at 61.59 cents, up 59 points.
Wednesday, April 20
The bulls remained in control of the market for a third consecutive session. July traded up to 64.74 cents but fell from that high in the last hour of trading and settled at 64.09, up 102 points. December traded in a narrow range early and even moved to negative ground, but the contract managed to settle at 62.29, up 70 points.
Thursday, April 21
Early trading indicated the rally would continue with July moving moderately higher, but selling pressure increased. The contract traded on both sides of unchanged for most of the remainder of the session and settled 8 points lower at 64.01 cents. On the other hand, December cotton settled at 62.70 cents, up 41 points.
Also on Thursday, USDA released its weekly export sales and shipment report. Net sales of U.S. upland cotton totaled 104,800 bales in the week ended April 14, up 24 percent from the previous week, but down 10 percent from the four-week average. Featured buyers were China, Pakistan and Vietnam. The department also reported sales of 20,200 bales for delivery in the 2016-17 marketing year. Export shipments for the week totaled 200,200 bales, up 8 percent from the previous week but down 13 percent from the four-week average. Primary destinations were Vietnam, Turkey and Mexico.
In the spot cotton market, producers in Texas, Oklahoma and Kansas sold equities on 2,564 bales in the week ended April 21. The average equity received was 3.72 cents per pound.