US cotton prices fell for a second day on Thursday in the benchmark May contract on talk that China, the world's biggest buyer, may exit the market for a while. "There is more than enough cotton around the world right now for the amount of cotton demand. So, there's no reason for these prices to be so high," said John Flanagan of Flanagan Trading Corp in North Carolina, echoing other brokers.
Benchmark May futures on ICE Futures US ended at 89.23 cents per lb, falling 1.30 cents or 1.44 percent. It moved to its lowest level since December 28 at 89.01 cents from a session high at 91.15 cents a lb. May volume came to 13,958 lots in late trade. March cotton settled at 87.48 cents, down 1.09 cents, or 1.23 percent. It was the lowest level since December 27. The range ran from 87.46 to 88.85 per lb.
Thursday was the contract's first day of deliveries. "We had deliveries today and Allenberg was the deliverer. So, not that many bales, but nonetheless when the world's largest merchant is giving away cotton, that's not friendly," said Keith Brown of Keith Brown and Co in Moultrie, Georgia.
"They should be acquiring cotton. That's what they do for a living," he added. Open interest left in March contracts as of Thursday came to 1,106, which brokers said amounts to about 110,000 bales of cotton. There were approximately 130,000 of certified stocks, meaning there was more demand for cotton than contracts outstanding. They added, however, that there was plenty of cotton available off the exchange in the cash market.
Brokers also said prices may have declined on talk that China may exit the market. "There was word out yesterday that China may begin to halt or slowdown Reserve buying as of March 1." Analysts pointed out that on March 1 Chinese mills will need an import license to bring cotton into the country. In order not to compete with its domestic mills, the Strategic Reserve will likely hold off buying to replenish stocks. Once mills have their fill, China's Reserve may return to buy US cotton.
Because of its clout as a large buyer in the global market, China's absence could push prices down to much lower levels. Some brokers said they think it is possible that China will wait until prices move down into the 70s cents per lb before stepping back in the market to buy any sizeable volume. Elsewhere, USDA will report weekly export sales on Friday because of the holiday shortened week.
Instead, the US government released its forecasts for US crop prices, predicting they will retreat sharply this year as world production and stocks expand after two years of heady prices. USDA further predicted that US upland cotton plantings should be 13 million acres, up by 1 million acres from previous forecasts. Analysts said USDA's latest projections fell a bit below the National Cotton Council's estimate at 13.6 million acres released earlier this month, though NCC's annual forecast includes all cotton, not just upland. Open interest in cotton, an indicator of investor exposure, declined by 2,015 lots to 170,422 lots as of February 22 ICE Futures US data showed. On Wednesday, volume rose by 4,168 lots to 27,767 lots from Tuesday's count, exchange data showed.