Cotton futures ticked up on Thursday, continuing their range-bound trading in light volume for another session as worries over tight US supplies in the first months of the new crop year buoyed prices despite expectations of huge global stocks. The benchmark December cotton contract on ICE Futures US closed up 0.25 cent, or 0.3 percent, to settle at 85.43 cents per lb.
A new crop expected to be late and a big drop in exchange stocks affirmed traders' worry over tightening US supplies and lifted fiber to a slight daily gain on the first day of the 2013/14 crop year. "You saw all the certified stock disappear, and this is not a year you'll get much out of the harvest in time" for December deliveries, said a US merchant. Exchange stocks fell below 72,000 bales, according to ICE data. That was the lowest level since November.
The swift drop in exchange stocks from over 600,000 bales a month ago has prompted worry over tight nearby US supplies, though a lack of mill buying and a stronger US dollar capped gains on Thursday, dealers said. Weekly US government export data showed decreases in both sales and shipments in the week ending July 25, affirming worry over recent slow demand.
The US dollar rose against a basket of currencies, making dollar-denominated raw materials more expensive to holders of other currencies. The worry over nearby US supplies has pushed December prices to a premium over March 2014 prices since the beginning of June. The backwardation is seen as unusual in a market expecting to see record global inventories as production has outpaced demand in recent years. Global cotton consumption has suffered since a run-up to historically high prices above $2 a lb in early 2011 drove mills toward lower-priced, synthetic alternatives.
Still, more than 60 percent of record inventories forecast by the end of July 2014 are expected to become part of China's stocks, and are considered unavailable to the global marketplace. In 2011, Beijing began paying above global prices to support farmers.