Cotton prices eased on Monday after global experts raised
estimates for supplies of the fibre, at a time when hedge funds large bets on
rising prices raised questions over the appetite for further long positions.
The International Cotton Advisory Committee raised by
231,000 tonnes, to a record 16.7m tonnes, its forecast for world cotton
inventories at the end of the 2012-13 season, in July, reflecting a weaker
estimate for consumption.
Cotton demand in China, the top consumer, is being suppressed
by price support system which, while helpful to farmers, is weakening the
competitiveness of mills, and prompting textile groups to look abroad for yarn.
The estimate for world inventories as of the end of next
season was lifted by an extra 360,000 tonnes on top, as the ICAC lifted its forecast
for world production – albeit seeing the crop down 10.6% year on year - while,
again, cutting consumption hopes.
Reasons for caution
The idea of even larger world cotton supplies, even if
largely stored in Chinese state stockpiles, added to negatives which slowed the
rally in New York futures on Monday which made the fibre the top performer in
commodities last month.
Speculators' net longs in New York softs, Jan 29, (change on week)
Cotton: 53,295, (+11,690)
Cocoa: 15,326, (-3,316)
Raw sugar: -5,893, (+12,409)
Coffee: -10,516, (+690)
Sources: Agrimoney.com, CFTC
New York's March contract stood 0.4% lower at 82.65 cents a
pound at 06:30 local time (11:30 UK time).
Stocks of cotton certified for delivery against New York
futures have been on the rise, reaching 137,381 bales as of Friday, up more
than 25,000 bales in a week.
Furthermore, China – whose high prices, even in sales of
cotton from state inventories have continued to underpin US exports - is
approaching its lunar new year celebrations, expected to prompt a dip in demand.
Separately, data from the Commodity Futures Trading
Commission, the US regulator, late on Friday showed managed money, a proxy for
hedge funds, hiking its net long position in New York cotton futures and
options above 50,000 contracts to the highest since October 2010.
Speculators' net longs in grains and oilseeds, Jan 29, (change on week)
Chicago corn: 164,434, (+12,927)
Chicago soybeans: 105,017 (+7,223)
Chicago soymeal: 35,952, (-406)
Kansas wheat: 15,220, (-1,633)
Chicago soyoil: -2,714, (+7,282)
Chicago wheat: -17,676, (+3,232)
Sources: Agrimoney.com, CFTC
Extreme positioning by speculators often encourages
profit-taking, in raising concerns over whether the wave of hedge fund positioning
has run its course.
Managed money, which in mid-November held a hefty net short position
in cotton futures and options, has now raised its net long position by 30,000
contracts in three weeks.
In raw sugar, in which speculators raised their net short holding
as of January 22 to the highest since at least 2006, the extent of the position
encouraged huge short-covering in the latest week, of more than 12,000
Managed money cut some of its net short position in Chicago
wheat too, reducing it to the lowest in a month.
However, positive sentiment was more evident in Chicago corn
and soybeans, in which growing concerns over South American weather prompted
speculators to raise net long exposure.
Dryness is prompting downgrades to hopes for Argentina's
corn and soybean harvests, while rain, while underpinning yield hopes in
Brazil, is hampering harvest and crop movement, dashing hopes of a strong level
of early export supplies.