Cotton futures extended their rebound, with new crop prices matching
a nine-month high, amid talk of Chinese import demand despite the country's
The rally in cotton prices stalled late last week after the US
Department of Agriculture estimated that domestic plantings of the fibre, while
set to fall steeply, would prove 1.0m acres that foresees in an industry survey in January.
The USDA said that the survey, by the National Cotton
Council, was undertaken "when December 2013 futures prices were 3-4 cents a pound
below their mid-February levels", a rise which had reduced the appeal of switching
to other crops.
Furthermore, world cotton inventories are to increase for a
fourth successive year, as global production once more exceeds demand, which
has yet to recover fully from the switch to alternative fibres encouraged by jump to record prices in 2011.
'Global stocks are
However, prices recovered amid ideas that Chinese importers
will remain in the market, despite the country accounting for all the rise in world
inventories in 2013-14, with stocks elsewhere easing a little, remaining indeed
near levels which preceded the spike in prices two years ago.
"If you take out China, global cotton stocks are very tight,"
Keith Brown, at Georgia-based broker Keith Brown & Co, said.
China's stockbuilding is being encouraged by domestic
support prices which remain far above market rates – giving mills a financial
incentive to import from the world market even if they have to pay import
"China's mills could import cotton under the 40%
out-of-quota tariff, for which the break-even price relative to domestic
supplies, if sold from the state reserve at 19,000 remninbi per tonne (138
cents per pound, would be a Cotlook A-index of about 88 cents per pound," the
Mr Brown said: "I think China will keep on buying until we
are certain of good crops in the likes of Pakistan and India," which would be likely
to set world prices on for a slide.
'Preparing for lower
Other factors cited in cotton's rebound, which took New York's
December 2013 futures contract to 84.75 cents a pound on Thursday, the highest
since May last year, include seasonal factors, with the fibre often rising at
this time of year, and the release of hedge fund selling pressure noted in
other agricultural commodity markets too.
Indeed, in cotton speculators have retained a net long
position in futures and options of nearly 60,000 lots, only just short of a mid-February number which was the highest since 2010.
"Most short-term market players clearly expect this
development [of rising prices] to continue - speculative net long positions are
only just below the level they reached in early February," Commerzbank said.
"The market is clearly preparing itself at present for a
somewhat lower availability of cotton."
New York's December contract closed at 84.70 cents a pound,
a gain of 2.3% and the lot's highest finish since May 2012.
The best-traded May contract closed up 3.1% at 84.38 cents a