Cotton Skids as Supply Outlook Improves and China Demand Slows
(Bloomberg) -- Cotton futures headed for the biggest drop in four months due to pressure from an improving supply outlook and signs that China’s appetite for supplies from top shipper U.S. has slowed.
Even as American exports sales climbed in the week to Oct. 14, they were down from a recent peak in September, with Chinese purchases staying below a recent weekly peak. Across commodities, there are fears that rising inflation may cool the economic growth and curb demand.
The Chinese purchases “were not what many people had expected after rumors of much bigger” buys, said Peter Egli, the Chicago-based director for Plexus Cotton Ltd. In addition, “harvest pressure is building” as crops start to move from key growers following earlier delays, he said.
In the U.S., top grower Texas will have favorable weather the next two weeks for the harvest to advance, with the bulk collected next month, said Drew Lerner, president of World Weather Inc. In India, the world’s biggest producer, conditions have also much improved as has the status for China crops, specially in its top producer Xinjiang, following too much moisture earlier in the season that raised quality and yield concerns, he said.
Cotton for December delivery fell 4.1% to $1.0623 a pound at 1:43 p.m. in New York. The price is up 36% this year on projections for two straight world deficits through July 2022.
Meanwhile, the market is still wrestling with the net impact on China’s overall import strategy following international backlash against cotton from Xinjiang, which accounts for more than 80% of total production.
While the country faces pressure to diversify its reserves to comply with international demands, it has rejected the labor abuse claims, and it’s not clear Washington can stop the Asian giant from using the stockpiles to make garments, given origin of the fibers used is very hard to trace, said Louis Rose of Rose Commodity Group in Tennessee.
Lawmakers asked the U.S. Customs and Border Protection on Thursday about its enforcement of the ban, saying the upcoming National Basketball Association season raises concerns about endorsement deals with Chinese sportswear companies including Anta, Peak and Li-Ning. The country’s total imports tumbled in September.
In other soft commodities, arabica coffee futures turned lower in their widest trading range of the week, under pressure from improving crop weather and the weakening Brazilian currency. The weaker real boosted the incentive in the world’s biggest producing nation to sell the commodity in U.S. dollars since it increased the sales price in Brazil.
©2021 Bloomberg L.P.