Cotton futures settled lower on Tuesday on speculative selling following a US government crop report that raised the estimate for world cotton ending stocks to a record for the upcoming 2012/13 season, analysts said. US Agriculture Department's monthly supply report released on Tuesday forecast world 2012/13 (August/July) cotton ending stocks at a record 74.51 million (480-lb) bales, up 1.03 percent from last month's estimate of 73.75 million.
China's beginning stocks for 2012/13 were raised to 27.33 million bales from 24.58 million in last month's USDA report. Chinese inventories now account for over 40 percent of the world beginning stocks in 2012/13 of 67.32 million bales. The benchmark December cotton contract on ICE Futures US fell 0.45 cent to end at 68.84 cents per lb, dealing between 67.96 and 69.50 cents. Volume on Tuesday reached slightly over 44,000 lots, over 80 percent above the 30-day norm, Thomson Reuters data showed.
"It seems like the USDA has a death wish for the market," Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia, said of the report's impact on cotton. "The ending stocks are still an albatross, a millstone for market bulls," said independent cotton analyst Mike Stevens in Mandeville, Louisiana. Cotton futures initially tumbled after the report, but the pressure eased going into the close of trading. Sharon Johnson, senior cotton analyst at Knight Futures in Atlanta, said that once market players reminded themselves that the Chinese stocks can only be accessed by Chinese mills, the impact of the figures on the market was dimmed a bit.
Johnson and other analysts said the Chinese cotton stockpile is a double-edged sword. On the one hand, it is a bearish factor given the size of cotton stocks at this time. But if the Chinese are the only ones who can get their hands on the cotton, the world market would not be impacted for now by its presence. "The equation will change if the Chinese decide to sell the cotton," one trader said. "One effect of such a large stockpile is that the Chinese will not be importing a large amount of cotton as before." China has been buying cotton in 2012 to rebuild its depleted stocks in its state reserves. "The most significant revisions to the world 2011/12 cotton estimates include an increase of nearly 1.8 million bales in China's imports, reflecting the continued strong pace of deliveries, and corresponding increases in exports for India, Brazil, Australia, the United States, and Malaysia," the USDA report explained.
USDA added: "China's 2012/13 imports also are reduced due mainly to larger estimated beginning stocks, accounting for most of the almost 700,000-bale reduction in world trade." China's cotton imports estimate in 2012/13 was reduced to 13.5 million bales from 14 million, USDA said. Total cotton consumption by the Asian giant was cut to 40 million bales from 41 million. The government estimated world 2012/13 cotton exports at 36.95 million bales down from 37.62 million and cut world 2012/13 cotton consumption to 109.01 million from 109.96 million. US cotton figures were seen by analysts as neutral to the market since production was left unchanged at 17 million bales.