A contact heard recently that China purchased Indian cotton, but not for the State Reserve, and asked if we agreed or disagreed.
Yes, we agree that China purchased Indian cotton, but not JUST for reserve (that too) and not JUST Indian growths. Much of the cotton imports of late has been for consignment stocks in China that will be looked over & bought by local mills later.
The big purchases by China (February was second-biggest import month on record) was of Indian, U.S., and Brazilian…India didn’t have all the fun. The U.S. shipped more cotton to China in Feb than any month in nearly six years. What’s more, these big purchases of Indian cotton prompted all the panicky Chicken Little on-again, off-again policy vacillation in India over the cotton export ban. The 800-lb gorilla continues to exert its influence over the global cotton market.
Wednesday, March 14, 2012
Monday, March 12, 2012
Weekly Commodity Market Recap: Cotton
ICE cotton futures finished Friday with another close lower, but still managed to rise for the week following Monday’s surprise limit-up move. Friday’s 76-point tumble in the Nearby capped four straight days of erosion in the May contract, but the combined 343-point loss over this period still did not fully offset Monday’s surprise 400-point surge. The curious turn in market prices shadowed a curious turn in breaking news last week. The big developments for the week that impacted the market were Indian policymakers vacillating over cotton exports followed by a generally bearish WASDE forecast for the U.S. and world cotton balance sheets.
First, early last week India announced an immediate export ban on cotton, whether or not the bales already had been registered for shipment. Apparently, the world’s second-largest cotton exporter has shipped substantially more cotton abroad than first anticipated, leading local the textile industry to worry that sufficient domestic cotton soon would be in short supply. In an ironic twist, large exporters are rumored to have shipped substantial volumes of local cotton to foreign warehouses in anticipation of the very export ban government officials say the shippers caused. The decision appears to have been made unilaterally without conferring with all domestic stakeholders, including India’s own Agriculture Minister. Understandably, the news threw markets into disarray and prompted howls of criticism, with local prices plunging while global and U.S. cotton prices rocketed ahead to start the week
But later in the week, the March WASDE provided its own fireworks, with surprise bearish adjustments to the balance sheets for both the U.S. and the globe. On the domestic front, despite strong evidence pointing to lower U.S. cotton exports, the USDA left this projection unchanged at a lofty 11.0 million bales. Instead, the USDA pared back its domestic cotton consumption forecast by 100,000 bales to just 3.4 million bales, the lowest in more than six decades. Worldwide, anticipated ending stocks jumped 1.55 million bales from February to 62.3 million, within a whisker of the record set five years ago. This adjustment eased the projected global stocks-to-use ratio to its loosest in a decade, weighing on price prospects later this year.
Lastly, the market was sent into another bout of disarray as Indian policymakers decided to move the goalposts again, not just once, but three times since Friday. First, prior to a meeting of cabinet ministers Friday to review the recent export ban, the Director General of Foreign Trade announced that cotton that had already cleared Indian customs by March 4th could be exported. Then Sunday Trade Minister Anand Sharma said the government had decided to fully roll back the ban, an apparent about-face from less than a week ago. However, Monday Trade Secretary Rahul Khullar announced the government won't accept new export registrations until it completes a review of recent exports and applications. This wavering indecision continues to roil markets and does little to boost the already-damaged reputation of India as a reliable cotton shipper.
Combined, the streak of declines Tuesday through Friday coupled with today’s intraday losses more than offsets last Monday’s limit-up jump on the ICE, suggesting the bears continue to maintain the upper hand over recent weeks. Since approaching medium-term resistance near $1.00/pound in mid-January, futures gradually eased lower, shedding roughly thirteen cents and presently stand near their lowest levels so far this year. If projected fundamentals for this marketing year continue to erode as we expect and there are no more policy surprises, the cotton market may be poised to ease lower as spring plantings approach and attention turns to weather developments for the new crop.
First, early last week India announced an immediate export ban on cotton, whether or not the bales already had been registered for shipment. Apparently, the world’s second-largest cotton exporter has shipped substantially more cotton abroad than first anticipated, leading local the textile industry to worry that sufficient domestic cotton soon would be in short supply. In an ironic twist, large exporters are rumored to have shipped substantial volumes of local cotton to foreign warehouses in anticipation of the very export ban government officials say the shippers caused. The decision appears to have been made unilaterally without conferring with all domestic stakeholders, including India’s own Agriculture Minister. Understandably, the news threw markets into disarray and prompted howls of criticism, with local prices plunging while global and U.S. cotton prices rocketed ahead to start the week
But later in the week, the March WASDE provided its own fireworks, with surprise bearish adjustments to the balance sheets for both the U.S. and the globe. On the domestic front, despite strong evidence pointing to lower U.S. cotton exports, the USDA left this projection unchanged at a lofty 11.0 million bales. Instead, the USDA pared back its domestic cotton consumption forecast by 100,000 bales to just 3.4 million bales, the lowest in more than six decades. Worldwide, anticipated ending stocks jumped 1.55 million bales from February to 62.3 million, within a whisker of the record set five years ago. This adjustment eased the projected global stocks-to-use ratio to its loosest in a decade, weighing on price prospects later this year.
Lastly, the market was sent into another bout of disarray as Indian policymakers decided to move the goalposts again, not just once, but three times since Friday. First, prior to a meeting of cabinet ministers Friday to review the recent export ban, the Director General of Foreign Trade announced that cotton that had already cleared Indian customs by March 4th could be exported. Then Sunday Trade Minister Anand Sharma said the government had decided to fully roll back the ban, an apparent about-face from less than a week ago. However, Monday Trade Secretary Rahul Khullar announced the government won't accept new export registrations until it completes a review of recent exports and applications. This wavering indecision continues to roil markets and does little to boost the already-damaged reputation of India as a reliable cotton shipper.
Combined, the streak of declines Tuesday through Friday coupled with today’s intraday losses more than offsets last Monday’s limit-up jump on the ICE, suggesting the bears continue to maintain the upper hand over recent weeks. Since approaching medium-term resistance near $1.00/pound in mid-January, futures gradually eased lower, shedding roughly thirteen cents and presently stand near their lowest levels so far this year. If projected fundamentals for this marketing year continue to erode as we expect and there are no more policy surprises, the cotton market may be poised to ease lower as spring plantings approach and attention turns to weather developments for the new crop.
Monday, March 5, 2012
INTL-FCStone International Agricultural & Economic Forum April 25 – 27
This international forum will explore intermediate and long-term insight into the economic, energy, maritime freight, foreign exchange markets, weather and agricultural products, with global and regional focus for those seeking insight into strategic decision making. Click here to view the agenda and a list of speakers or to register.
Will Indian Cotton Export Ban Boost Prices again?
Following today's export ban by India, the question many are asking is if this move could be enough of a driver to propel prices to approach last year's highs.
In short, no, we do not see India’s suspension on cotton exports as enough of a catalyst to propel cotton to another rally similar to the 2010/11 surge that peaked well over $2.00/pound. Certainly, India is the second-largest producer and exporter of cotton in the world, and this move is likely prop up prices, if not give a boost to the market. But global fundamentals are quite different this year vs. last year and recent momentum was pointing to looser fundamentals ahead, unlike prospects for gradually tighter fundamentals witnessed about 1.5 years ago. What’s more, last year’s spike was the culmination of a ‘perfect storm’ of bullish ‘waves’ that all crashed together at the same time. These included tighter U.S & global balance sheets, record volatility, record backwardation, an unprecedented short squeeze in the U.S., and the weakest dollar in years, among a few. Today’s market certainly reflects a much different landscape.
Perhaps most importantly, today’s soft demand across the global textile supply chain is likely to keep cotton reined in well short of last year’s spike above $2.00/pound, regardless of India’s latest policy move.
In short, no, we do not see India’s suspension on cotton exports as enough of a catalyst to propel cotton to another rally similar to the 2010/11 surge that peaked well over $2.00/pound. Certainly, India is the second-largest producer and exporter of cotton in the world, and this move is likely prop up prices, if not give a boost to the market. But global fundamentals are quite different this year vs. last year and recent momentum was pointing to looser fundamentals ahead, unlike prospects for gradually tighter fundamentals witnessed about 1.5 years ago. What’s more, last year’s spike was the culmination of a ‘perfect storm’ of bullish ‘waves’ that all crashed together at the same time. These included tighter U.S & global balance sheets, record volatility, record backwardation, an unprecedented short squeeze in the U.S., and the weakest dollar in years, among a few. Today’s market certainly reflects a much different landscape.
Perhaps most importantly, today’s soft demand across the global textile supply chain is likely to keep cotton reined in well short of last year’s spike above $2.00/pound, regardless of India’s latest policy move.
Weekly Commodity Market Recap: Cotton
Cotton markets in the U.S. and around the world edged lower again last week on persistently weak demand prospects, but two new policy moves could limit downside potential well into the spring. ICE cotton futures shed 192 points for the week to settle at 88.23 cents per pound, the lowest weekly close since mid-December. Cotlook ‘A’ Index prices, a proxy for world cotton prices, dipped 70 points from a week earlier to 97.45, the lowest since the start of this year. While sentiment is gathering steam for lower Northern Hemisphere cotton plantings this spring, the demand side of the balance sheet continues to weigh on the global cotton market.
This weakness is spread both geographically and across the supply chain, from East to West and from yarn spinning to retail sales. Most recently, mills in Thailand and South Korea reported another month of soft demand for their textiles, suggesting cotton consumption forecasts for both markets are overstated. Owing to record unit costs and weak foreign demand, Pakistani exports of cotton fabric sank the most in years in January, with volume plunging to the lowest January in more than a decade. Even retail was not immune. While some markets reported upbeat sales, others—like Italy—saw a disappointing December shrink garment sales for the fourth straight year. Until price pressures ease across the breadth of the supply chain and retail demand in several key markets shows sustained signs of a rebound, upstream textile output may remain restrained, weighing on cotton prices.
But at the same time, two new policy developments could help prop up global cotton markets, offsetting some of this bearish weight looming over the market. First, Thursday China announced it planned to boost the Reserve procurement price for cotton starting this autumn. Many believe the move is to partially offset what is likely to be a widespread decline in Chinese cotton plantings this spring. While only a modest 3% increase from the current procurement price to 20,400 yuan per ton ($1.47/pound), the implication is that spot and forward market prices in China—and by extension, around the world—may remain firm through 2012 as well.
The second policy development came Monday from India’s Directorate General of Foreign Trade (DGFT), announcing an immediate suspension of Indian cotton exports. While rumors circulated for days that this move was imminent, the announcement plunged local Indian prices while helping propel ICE cotton futures limit up in early Monday trading. While some in India welcomed the move, others called it regrettable. The perceived rash move is reminiscent of what the market saw almost two years ago when India—the world’s second-largest cotton exporter—last tinkered around their cotton trade policy. Doing so this year—with Chinese mills now as major buyers—could give another black eye to the reputation of the Indian shipper on the global market. Over the last two years, Pakistani mills bore the brunt of the cancelled Indian shipments. But this year it will be the Chinese left empty-handed. We suspect these jilted spinners may not soon forget, suggesting increased inquiries to U.S. merchants & co-ops at a time of relatively thin uncommitted exportable supplies.
This weakness is spread both geographically and across the supply chain, from East to West and from yarn spinning to retail sales. Most recently, mills in Thailand and South Korea reported another month of soft demand for their textiles, suggesting cotton consumption forecasts for both markets are overstated. Owing to record unit costs and weak foreign demand, Pakistani exports of cotton fabric sank the most in years in January, with volume plunging to the lowest January in more than a decade. Even retail was not immune. While some markets reported upbeat sales, others—like Italy—saw a disappointing December shrink garment sales for the fourth straight year. Until price pressures ease across the breadth of the supply chain and retail demand in several key markets shows sustained signs of a rebound, upstream textile output may remain restrained, weighing on cotton prices.
But at the same time, two new policy developments could help prop up global cotton markets, offsetting some of this bearish weight looming over the market. First, Thursday China announced it planned to boost the Reserve procurement price for cotton starting this autumn. Many believe the move is to partially offset what is likely to be a widespread decline in Chinese cotton plantings this spring. While only a modest 3% increase from the current procurement price to 20,400 yuan per ton ($1.47/pound), the implication is that spot and forward market prices in China—and by extension, around the world—may remain firm through 2012 as well.
The second policy development came Monday from India’s Directorate General of Foreign Trade (DGFT), announcing an immediate suspension of Indian cotton exports. While rumors circulated for days that this move was imminent, the announcement plunged local Indian prices while helping propel ICE cotton futures limit up in early Monday trading. While some in India welcomed the move, others called it regrettable. The perceived rash move is reminiscent of what the market saw almost two years ago when India—the world’s second-largest cotton exporter—last tinkered around their cotton trade policy. Doing so this year—with Chinese mills now as major buyers—could give another black eye to the reputation of the Indian shipper on the global market. Over the last two years, Pakistani mills bore the brunt of the cancelled Indian shipments. But this year it will be the Chinese left empty-handed. We suspect these jilted spinners may not soon forget, suggesting increased inquiries to U.S. merchants & co-ops at a time of relatively thin uncommitted exportable supplies.
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