Despite rising prices, sales from China’s cotton reserve are still going strong.
That’s according to a new report out by the United States Department of Agriculture (USDA) Tuesday, which said that as of Friday, sales totaled 1.184 million tons with more than 97 percent of what was on offer being sold.
“Nearly all of the cotton being offered in recent weeks has been domestic,” the report noted. “Early commentary on reserve sales suggested strong purchases in early May could have been driven by the large imported volumes on offer, but continuing high sales with only domestic offerings suggest demand is more broadly-based than previously considered.
The base sale price for China’s reserve cotton has continued to rise, now hovering just below $0.90 per pound. But despite the higher price, the cotton still comes in cheaper than the price of cotton imports from West Africa, Australia and the U.S., which the USDA said could mean prices for China’s reserve inch up even higher if demand persists.
“To date, even with reserve sale prices well above initial levels and above what many observers expected prior to auctions beginning, import demand has not shown any appreciable move upwards,” according to the report. “Thus, while strong auction sales speak to significant domestic demand and tight pre-auction stocks, there is not yet evidence of demand sufficient to markedly increase imports.”
With the strong sales and market data that pointed to more mill use than expected, USDA revised China’s consumption forecast up 1.5 million bales.
“For 2016/17, world production and beginning stocks are forecast down, due to lower production in India and Pakistan which more than offset higher production in the United States and Australia,” USDA said. “Consumption is forecast higher due to a large increase in China being only partially offset by declines in India and Pakistan.”
India’s production for the coming season is projected down 500,000 bales and Pakistan’s down 1 million bales. The U.S. is expected to produce 1 million more bales of cotton owed to higher planted area and favorable weather, and Australia’s production is projected up 200,000 bales.
Higher exports and lower beginning stocks offset the increase in production and world ending stocks are forecast down 3.44 million bales for the 2016/17 season.
USDA raised the U.S. season-average farm price $0.02 to $0.59 per pound.
“The A-Index and U.S. spot prices continued to show recovery as remaining old crop supplies tighten,” the report noted.