It is clear that China imports more cotton than the WTO minimum
U.S. export sales and shipments continue to meet and exceed even the very bullish expectations laid out last spring. Mills have raised their price ideas to the low 70s and with New York futures at 69 cents and lower, they will continue to be aggressive buyers. Too, while the U.S. and world crops are slightly larger than last month’s WASDE estimates, production difficulties in Pakistan and other countries will continue to boost world cotton trade and add support to the market. This is a feature published by O.A.Cleveland, Consulting Economist at Cotton Experts
The USDA September world supply and demand report was released on September 12, and is expected to be slightly bearish, initially. However, the realization of much stronger world trade should quickly offset any bearish tone.
However, other fundamentals should keep trading within the 67-72 cent range, basis the New York December contract. That narrow five-cent trading range is still predicted to be the dominant feature for at least another month and probably for two more months. Of course, Mother Nature can easily change the course of the market. Most of the Northern Hemisphere crop now needs warm, dry, sunny weather to allow for a successful end of the production cycle. The late-planted Indian crop can still use moisture, but the monsoon is beginning to withdraw.
Cotton, while still priced about two times higher than acid-based chemical fibres, is finding support from the release of the Chinese Reserve stocks. The market will remain nervous and subject to a 200-250 point setback, as both the U.S. crop and carryover estimates are yet to play out.
U.S. export sales for the week ending 9/1/2016 were a net of 334500 running bales (RB) of Upland and 20,100 RB of Pima. Sales for the 2017/18 marketing season were 18900 RB. This continues the five-week pattern of very bullish export sales that began when New York fell to near 66 cents. It continued as prices eased some 300 points higher.
A distinguishing feature is that China has increased its import purchases in a moderate, but very consistent, pattern. Sales to China this week were a net 29300 bales. Major sales to Vietnam, Turkey, Bangladesh, Indonesia and other Southeast Asian countries continue, but the market has also enjoyed significant sales to Pakistan. The Pakistani purchases became necessary when production difficulties hit that crop.
It is likely that sales to China will slow. However, now that the Chinese Reserve sales are again approaching near daily sell-outs, the government needs imported cotton to assist in maintaining a major demand for the several-year-old domestic stocks that will comprise the Reserve sales in 2017. Reserve sales have surpassed 10.0 million bales, the initial target for the year. Likely the 2016 sales activity will continue through the end of September, resuming again in 2017. Total reserve sales for the year will approach 11.5-12.0 million bales.
Thus, early evidence is clear that China will import more than the WTO minimum. Too, the ongoing production difficulties facing the 2016 Chinese crop is restricting its yield outcome. China will continue to buy quality cotton, specifically from Australia, the U.S. and Brazil. Additionally, as implied, Chinese demand is increasing. Much of this is from active wear products that the world cotton market must uncover.