ICE Cotton absorbed index fund-related selling last week to close almost unchanged at 82.59. The USDA WASDE release was overall bearish, as Chinese production added a million bales, helping global ending stocks climb to 97.6m bales.
US production added around 100k bales as did exports, leaving carry-out unchanged. The market quickly discounted the report though as foreign demand has jumped noticeably this week, which should send next week’s export sales total above the low 68k bales sold (with only 4k to China) last week.
Some support was provided mid-week by rumors of an additional 500k MT of import quota to be issued later this year in China, however for the moment that – combined with the 894k MT of WTO-mandated quota – could be all that Chinese mills receive in calendar 2014.
There remains only an outside chance for any 3:1 quota to be issued alongside state reserve sales. Production will likely fall 10% in China in 14/15, which combined with a reduced level of imports and an end to the reserve purchasing program, should allow Chinese ending stocks to stabilize or at least slow their unprecedented growth.
US economic growth continues apace with the unemployment rate having fallen to 6.7% in December, although jobs created (+74k) fell well short of expectations (+200k). The Fed has made clear that a breach of its 6.5% target is not all that’s required to induce faster tapering, so bond yields and the USD fell as investors forecast slower tapering on the back of the headline number.
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