April 2018 Market Summary
International cotton asking prices moved within their recent range during most of April, but ended higher on balance. The market lacked any decisive price impetus during most of the period. However, in the final trading days of the month, sharp fluctuations were in evidence in New York were reflected in shippers’ offering rates. The Cotlook 2017/18 A Index started at just over 90.00 US cents per lb, and settled 350 cent points higher, at 93.70 US cents per lb, only marginally lower than the monthly high-point.
The 2018/19 Index started the period just 155 points below the Current Index value. The narrowest price differential was noted early in the period, when the two Indices were within one cent of each other. The volatility witnessed late in the month was less apparent in the forward contracts in New York and by the end of April the gap between prices had widened to 280 points.
The volume of unfixed ‘on-call’ sales in New York, a potential bolster to futures prices, remained heavy from an historical perspective; fixations against the maturing May contract were heavy when futures prices dipped, and some contracts were rolled into July. By late April, unfixed on-call sales stood at over nearly 47 percent higher of the same point in 2017.
Business activity has been persistently selective during recent months and that trend continued during most of April. High prices for nearby delivery persuaded many mills with sufficient stocks to eke out their inventories and await new crop supplies. Merchants are conscious of the inverted configuration of futures contracts and are therefore keen to dispose of their long positions. Mills’ persistent reluctance to meet sellers’ nearby asking rates resulted in some pressure on basis levels toward the end of the month, for West African and Australian styles, amongst others.
US export commitments continued to buck the trend, registering persistently heavy sales and shipments during the period. Heavily-discounted low-Micronaire lint continued to find ready buyers. By the week ended April 19, cumulative US export sales registrations were approaching 1.8 million bales (480 lbs) above USDA’s forecast for the season (of 15 million bales). The pace of shipments accelerated during the month, and the cumulative total accounted for roughly 60 percent of cotton sold by the date in question.
Forward US sales commitments (for shipment in 2018/19) have also been persistently strong. The upland total by April 19 stood at about 3.5 million 480 lb bales.
In China, State Reserve auctions continued to attract a decent level of participation, though the very keen demand in evidence last year has yet to be repeated. Daily turnover stood at an average of around 46 percent during the month, helped by a late burst of demand which was prompted by a less abundant supply in the local market. The more desirable Xinjiang cotton (as opposed to lint produced in eastern provinces) continued to sell out in every session. By the end of April, cumulative sales were over 550,000 tonnes, representing about 53 percent of the volume on offer (compared with 62 percent by the end of March). Were such a ratio to be maintained, sales by the end of August (the scheduled conclusion of this year’s auction series) would be in the region of 1.93 million tonnes, suggesting that stocks in government control would have dwindled to roughly 3.3 million. The international trade has therefore continued to anticipate that the point at which a significant relaxation of import policy will come under consideration is moving steadily closer.
On the supply and demand front, Cotlook’s April estimate of global production in 2018/19 underwent a reduction of 69,000 tonnes, owing almost entirely to a reduction for the US, where continued uncertainty prevails regarding eventual output. Chronic drought has plagued the major producing region West Texas; expectations of higher abandonment and lower yield informed the change, which was partially offset by higher production numbers for Brazil and Uzbekistan. World consumption was also lowered, by 103,000 tonnes. The result is that Cotlook continues to anticipate a reduction in world stocks at the end of 2018/19, with the reduction occurring entirely in China for the third consecutive season.