Cotton Jumps as India Supply Falls, Traders Reassess China Sales

Cotton Harvest And Production As World Stockpiles Forecast To Be Second-Largest Ever At End Of Season

A worker hand-picks cotton in a field in Wankaner, Gujarat, India, on Tuesday, Dec. 15, 2015.

Photographer: Dhiraj Singh/Bloomberg
  • India's crop falling 12% while Texas planting hindered by rain
  • China stock sales may actually spur imports, consultant says

Cotton futures capped their biggest gain in more than eight months amid supply constraints and a sharp change in sentiment over what a liquidation of Chinese inventories will mean for the market.

Deliveries of raw cotton to Indian mills have fallen 12 percent this season, indicating a smaller crop this year, the Cotton Association of India said Monday. Planting will be halted in Texas’s Coastal Bend region by rainfall as much six times the normal level over the next four days, MDA Weather Services meteorologist Donald Keeney said in an interview.

“The overall supply demand fundamentals are not horrid and there is rain around,” Jack Scoville, a vice president for Price Futures Group in Chicago, said by e-mail.

Other bullish factors include futures breaching the 200-day moving average for the first time since December; money managers shifting to a net-long position in cotton for the first time since February; and the U.S. government last week reducing estimates for domestic inventories and global output.

Even last week’s market-moving news -- that China plans to auction about 2 million metric tons from its vast stockpiles in May through August -- is now being seen in a more positive light by some. China indicated it will first sell high-quality fiber from its inventory, suggesting the material, which may have been in storage for years, isn’t in good shape, said Louis Rose, an industry consultant in Memphis, Tenn. That may spur China to buy more higher-quality U.S. fiber, Rose said in an interview.

Cotton for July delivery soared as much as 4 percent and settled 3.7 percent higher at 62.23 cents a pound on ICE Futures U.S in New York, marking the biggest gain for a most-active contract since Aug. 12. Trading volume was more than double the average in the past 100 days, according to data compiled by Bloomberg.

The U.S. Department of Agriculture last week cut its estimate for U.S. ending stockpiles of cotton by July 31 amid lower domestic output. The agency also trimmed its projection for global production by 1.1% to 99.8 million bales (a bale weighs 480 pounds, or about 218 kilograms). That would be a year-on-year decline of 16 percent, the biggest since at least 1961.

In the week ended April 12, money managers shifted to a net-long position for the first time since February as they cut short bets for a second week, government data showed Friday. Futures climbed for sixth straight time last week, longest string of weekly gains since February 2011.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE