A cut in 2016-17 world production is expected to counter a boost in U.S. crop prospects in USDAΆs supply-demand report on Tuesday. Analysts projected U.S. crop at 15.24 million bales.
Cotton futures, triggering buy stops on the way up, surged to closing gains of 110 to 222 points Monday prior to USDAΆs supply-demand report.
Most-active December surged 197 points to settle at 67.78 cents, just off the high of its 197-point range from up seven points at 65.88 to up 204 points at 67.85 cents. It settled on its highest finish since November 2014.
March closed up 191 points to 67.84 cents, while spot October gained the most to finish at 68.14 cents. October closed at the highest finish on the spot continuous daily chart since September 2014. OctoberΆs high of 68.15 cents was the highest since the spot futures high of 68.30 on Aug. 17, 2015.
Volume increased to an estimated 36.655 lots from 32,362 lots the previous session when spreads accounted for 6,706 lots or 21% and EFP 120 lots. Options volume totaled 6,292 calls and 7,719 puts.
The supply-demand report, which will incorporate the June planted acreage data into the U.S. crop estimate, is scheduled for release at 11 a.m. CDT on Tuesday.
A cut in world 2016-17 production from last monthΆs estimate is expected by some analysts to counter a larger U.S. output and result in lower global ending stocks amid relatively steady mill use.
This plus a continued tightening of available current-crop supplies, especially of higher qualities, ahead of volume movement of the new crop appeared to have contributed to the futures surge.
Strong cotton prices in China and India — the worldΆs largest cotton consumer and producer, respectively — also may have played a role. Robust demand has prevailed for stocks offered at auction from ChinaΆs reserves.
India showed up on the latest U.S. weekly export sales report, purchasing 26,800 running bales of upland for shipment this season and an additional 29,100 RB for delivery next season. This was viewed as a sign of tightening supplies in the worldΆs second largest cotton consumer.
Elsewhere, the Karachi Cotton Association has urged the government to waive all duties and taxes on cotton imports, noting that the Pakistani textile industry has been compelled to import cotton to meet its demand for raw material following the devastating 2015-16 crop failure.
Projections of U.S. production have moderated since some initial trade estimates following USDAΆs report that growers planted 10.023 million acres, up 17% from last year.
Cotton analysts on average estimated a crop of 15.24 million bales in a survey by The Wall Street Journal, up from 14.8 million forecast by USDA last month and 12.89 million in 2015-16.
The analystsΆ estimates ranged from 15.1 million to 15.7 million bales. Their estimates of exports averaged 10.86 million bales, ranging from 10.5 million to 11.5 million, and their carryout forecasts averaged 5.03 million bales within a range from 4.5 million to 5.3 million.
The USDA last month projected exports at 10.5 million bales and ending stocks at 4.8 million bales, compared with its 2015-16 estimates of 9 million and 4.1 million bales, respectively.
World stocks are expected to fall a second year. The USDA last month projected 2016-17 ending stocks at 94.7 million bales, down 7% or nearly 7.4 million bales from the beginning level and the lowest in four years.
Global stocks reached a record 112.5 million bales last season, largely owing to government policies in China that supported growth in ChinaΆs reserves. Since then, policies implemented to reduce the huge surplus have cut stocks in China as well as global supplies.
Talk has circulated that USDAΆs 2015-16 stocks estimate outside China may have been overstated.
Futures open interest grew 5,120 lots Friday to 188,116, with DecemberΆs up 3,982 lots to 151,693 and MarchΆs up 725 lots to 23,362. Stocks in deliverable position declined 1,551 bales to 133,612.
