Cotton Falls as Speculators Exit Bullish Positions

By Carolyn Cui Features Dow Jones Newswires

Cotton futures fell Friday as speculators continued to exit their bullish positions after cotton's gyrations in mid-May.

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In New York, cotton for July delivery dropped 0.6% to 77.14 cents a pound at the ICE Futures U.S. exchange. That represented an 11.6% loss from its peak hit on May 15.

Open interest of the July contract dropped to 91,399 lots Friday, down more than 50,000 contracts since May 5, when it had reached a record 141,874 contracts, according to Plexus Cotton.

"Speculators have been calling it quits since July's parabolic up and down move, but there haven't been any massive sell stops hit so far, which is why the liquidation has been orderly and without much price movement. While speculators are selling, the trade is eager to cover its short position, which is to a large degree tied to unfixed on-call sales," according to Plexus.

The latest on-call report showed that as of May 26 there were still 3.1 million bales to be fixed on July and Plexus estimated that this number is down to around 2.7 million bales by Friday. "Nevertheless, this is still a sizeable amount considering that there are only about three weeks left to get it done," it said.

The International Cotton Advisory Committee on Thursday reduced its estimates of the world's ending stocks for the current and next market years. The ICAC said it estimated world cotton production to reach 22.9 million tons while world mill use was projected at 24.3 million tons, "which represents the second consecutive season where mill use has exceeded production."

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As a result, the committee said it estimated the total cotton stocks by the end of July would decrease by 7% to 17.3 million tons.

Specially, the ICAC noted that China, the world's largest cotton consumer, would increase its cotton purchases from the international market for the first time in five years. Declining domestic production and increasing mill use there have pushed Chinese mills to source cotton overseas. In the year ending July, China is expected to increase cotton imports by 10% to 1.06 million tons.

Sales from the state-run reserves were also used to make up for the shortfall. The ICAC estimated that China this year has auctioned off over 1.1 million tons of cotton through May.

As a result, the decline of world ending stocks occurs entirely within China where stocks are projected to be down 17% to 9.2 million tons by the end of July, according to the ICAC. Stocks held outside of China are forecast to rise by 6% to 8 million tons.

In other markets, raw sugar for July was down 0.1% at 14.22 cents a pound; cocoa for July fell 0.8%, to $2,008 a ton; arabica coffee for July delivery lost 0.2%, to $1.2750 a pound; and frozen concentrated orange-juice futures for July dropped 1%, to $1.3060 a pound.--

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

June 02, 2017 11:07 ET (15:07 GMT)