Futures prices for cotton from the next harvest hit a 10-month
high, even as those for fibre from the last harvest struggled, amid ideas that China's
imports could be in for a sharp decline.
Cotton for May delivery closed 0.2% lower at 86.72 cents in
It lost nearly all its premium over the December lot - the first
contract for the US 2013 crop - which added 0.3% to 86.39 cents a pound, its
best finish in 10 months.
The dynamics came despite a US Department of Agriculture cut
on Friday of 300,000 tonnes to 4.2m tonnes in its estimate for stocks as of the
end of 2012-13, a revision which at one point sent the May contract to its own
10-month high of 88.78 cents a pound on the day.
Already factored in?
The USDA downgrade, in its monthly Wasde report, was the
latest in a series, prompted largely by unexpectedly fast US cotton exports, largely
"In August last year, the USDA projected the US 2012-13
cotton carryout at 5.5m bales, 30% higher than its current projection," Luke
Mathews at Commonwealth Bank of Australia said.
However, the revision had already been discounted by
investors – explaining the loss in the May contract of most of its intraday gains
by the close on Friday, analysts said.
"The Wasde report was supportive for cotton prices, though
the market had arguably already factored in the bullish news into existing
prices," Mr Mathews said.
Chinese imports to
And analysis of the USDA figures suggests a sharp slowdown
in Chinese imports in the second half of 2012-13 – with the forecast that the country
will buy-in 15.0m tonnes over the whole season implying a relatively modest
5.2m tonnes in the second half.
The estimates suggest "that the USDA assume a slowdown in
exports within the final six months of the season to average 871,000 bales per
month, down from 1.6m bales in the first six months", Rabobank said.
"Old crop values have passed fair value, and reduced Chinese
imports in the second half of 2013 will result in a correction lower for old
Old vs new
However, Goldman Sachs led pressure for a more generous
assessment of prices for the US 2013-14 harvest, given the temptation for
farmers to sow other crops offering better returns.
"The rally in cotton prices has been driven in large part by
near-dated prices, with net speculative length increasing sharply for old-crop
positions," the bank said.
Regulatory data late on Friday showed speculators increasing
their net long position in New York cotton futures and options by nearly 8,000
contracts to 60,482 lots, the second-highest figure since October 2010.
"We believe instead that the tightening in fundamentals will
occur in the new-crop with December 2013 cotton prices offering a sharply lower
producer margin than competing crops like corn and soybeans," Goldman said.
"As a result, our three-month price forecast remains below
the forward curve and we see more upside risk to cotton prices for deferred