DTN Cotton Close: Surges to 5 Month High

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    Technical buying, big mill unpriced call position and lingering vibes from strong weekly export sales helped fuel a 5.1% surge from Friday’s close. World cotton prices may fall in the second half of 2016-17 owing to increased supplies, ICAC says.

    Cotton futures surged to the highest intraday price since Aug. 9, triggering buy stops along with way, and finished a heavily traded session near the high Wednesday.

    March settled up 230 points to 74.08 cents, near the high of its 266-point range from down 21 points at 71.57 to up 245 points at 74.23 cents. This was its highest close since Aug. 8.

    May advanced 210 points to close at 74.22 cents, while new-crop December gained 122 points to settle at 71.59 cents.

    Technically oriented buying, a big mill unpriced on-call position and lingering vibes from another strong U.S. export sales report last week helped drive March up to 5.1% from Friday’s close.

    Volume leaped to an estimated 54,844 lots from 21,668 lots the previous session when spreads accounted for 8,066 lots or 37% and block trades 1,900 lots. Options volume totaled 9,000 calls and 8,903 puts.

    The powerful rally followed an International Cotton Advisory Committee report this week that world cotton prices may fall in the second half of the 2016-17 marketing year owing to increased supplies.

    The ICAC secretariat said in a monthly report that the season-average world price as measured by the Cotlook A Index will range between 66 and 83 cents per pound, with the midpoint of 74.50 cents up about four cents from last season.

    This season started with a large shrinkage in stocks, particularly from countries in the Southern Hemisphere, which saw 2015-16 ending stocks fall by 21% to 1.6 million metric tons (7.3 million 480-pound bales), lowest since 2009-10, ICAC said.

    Supply tightness carried through the first few months of 2016-17 as the bulk of the crop still was being harvested, keeping prices firm. However, world cotton production is projected to rise by 8% to 22.77 million tons (104.6 million bales), which may put pressure on cotton prices in the latter half of the season, ICAC said.

    World stocks may fall by 7% to 17.95 million tons (82.4 million bales), but stocks outside China are expected to grow by 6% to 8.7 million tons (nearly 40 million bales), according to ICAC’s latest estimates.

    With the exception of China, where the crop is forecast to decline 4% to 4.6 million tons (21.1 million bales), production is projected higher in the top five producing countries, including India, the United States and Pakistan.

    Additionally, production in the Southern Hemisphere, primarily Australia and Brazil, is expected to rise by 21% to 2.8 million tons (12.86 million bales). This could pressure prices through the end of 2016-17 to the start of the next season as both countries are large exporters, ICAC said.

    Production in Brazil, the world’s fifth largest producer and largest in the Southern Hemisphere, is forecast to increase by 10% to 1.4 million tons (6.4 million bales). Australia’s crop is forecast to grow by 64% to a million tons (4.59 million bales).

    World cotton consumption is likely to remain stable at 24.13 million tons (110.83 million bales), ICAC said. While prices for polyester, the main competing fiber, have risen in recent weeks, they remain well below international cotton prices. It’s unlikely cotton mill use will expand this season unless polyester prices continue to rise, ICAC added.

    The ICAC estimates indicated the world crop shortfall is expected to fall to 6.11 million bales from 14.15 million bales last season.

    Futures open interest grew 1,846 lots Tuesday to 247,158, with March’s up 565 lots to 165,235 and May’s up 855 lots to 41,581. Certified stocks were unchanged at 40,470 bales.

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