Cotton dips in choppy trade as USDA cuts world demand outlook

ICE cotton dipped in choppy trade on Friday after the US government lowered its forecast for demand in some of the world's leading consumers in its monthly supply and demand report, though it also reduced expectations for US output. The December contract settled down by 0.11 cent, or 0.2 percent, at 61.61 cents a lb after falling in the period immediately before settlement despite trading in positive territory for the bulk of the time after the report's release.
Trade was choppy immediately after the US Department of Agriculture released its report, as changes to its expectations for year-end inventories in the United States and world markets contrasted with each other, sending mixed signals. "We lost on both sides," said Peter Egli, director of risk management at British merchant Plexus Cotton, referring to the USDA's cuts to both world-wide supply and demand expectations. "There's no major reason to jump one way or another."
The USDA cut its forecast for 2015-16 production in the United States, the world's leading exporter, to 13.34 million 480-pound bales, down from its September estimate of 13.43 million bales. This resulted in a reduction in expected inventories at the end of the season, which is next July, to 3.1 million bales, down from 3.2 million last month. Prices switched between positive and negative territory throughout afternoon trading as traders weighed those supply cuts against the USDA's forecast for lower demand in some of the world's leading consumers, including top-user China.
The USDA lowered its expectations for world demand to 112.27 million bales, down from 113.44 million last month, and raised its forecast for year-end inventory to 106.97 million bales, up from 106.26 million in September. This was led by a reduction in the demand outlook for China to 33.5 million bales, down from 34 million, and also included consumption reductions for Pakistan and India. The USDA also lowered its forecast for world production to 107.38 million bales, down from 108.74 million in September.