* ICE inventories increase to highest since August
* Market moves into contango for first time in four months
* Rising stocks stoke worry over canceled orders
By Chris Prentice
NEW YORK, Oct 11 Cotton exchange stocks rose
last week to the highest since August, returning the market to a
contango for the first time in four months and quelling concerns
about dwindling supplies as U.S. traders await the late arrival
of the 2013/14 crop.
Even so, the sudden injection of supplies has reignited
concern over canceled orders and faltering demand for cotton,
which has faced growing competition from lower-priced, synthetic
fibers in recent years.
Certified stocks rose to more than 24,300 bales by Friday,
with another 35,700 bales awaiting review by the U.S. Department
of Agriculture, the most recent IntercontinentalExchange data
showed on Monday.
That has lifted available inventories by about 11,500 bales
in one week to the highest since August and is the first sign of
a significant return of supplies since exchange stocks fell
precipitously from nearly 623,900 bales in early July, data
compiled by Reuters show.
"Rumor has it that this inventory will grow to at least
150,000 to 200,000 bales over the coming weeks," Peter Egli,
director of risk management for British cotton merchant Plexus
Cotton Ltd, said in a report.
As of early October, total exchange inventories had plunged
to 11,900 bales, the lowest since November 2012.
This summer's steep drop in exchange inventories was
particularly troublesome for the cotton trade, as the U.S. crop
is expected to be the smallest in four years and late because of
The sudden arrival of the bales returned the market to a
contango last week for the first time in four months, making it
less costly for merchants and users to pay the cost of
warehousing, or carrying, the cotton.
"You probably could hear the collective sigh of relief from
the trade as that happened," said a U.S. trader.
The December contract on ICE Futures U.S. traded at a
discount of 0.95 cent a lb to the March, up from 0.85
cent a lb on Friday and a premium of 0.05 cent the previous
The December contract had been trading at a premium
to March since June, as concerns built over upcoming
supplies in the United States, the world's top exporter, and as
a certified stocks fell steeply following a large July ICE
CANCELLATIONS, MISSING DATA
The bulk of the climbing inventories are expected to be
cotton from the 2012/13 crop year, ended July 30, as harvesting
of the new crop is just now under way, traders said.
At least a portion is expected to be supplies that
Switzerland's Glencore Xstrata Plc bought this summer
through the July exchange delivery and purchases in the cash
market. A spokesman for the company declined to comment.
The rise is being taken by many as a signal of order
cancellations, as any buyer of cotton has to have sales booked
to take bales from the exchange stocks, per the Commodity
Futures Exchange Commission's hedging exemption rule.
Bales can be returned to the exchange if there are canceled
orders, if fiber from elsewhere is substituted, and if the
cotton does not meet the quality of a commercial sale.
Talk of cancellations has led to renewed worry about slowing
demand and ballooning global supplies.
"We're not seeing demand for these," said the U.S. trader.
"If there was demand, you wouldn't see this in the certified
Recently, high prices above 84 cents a lb have damped
buying, particularly in top consumer China, where the government
is considering overhauling its stockpiling program, which has
driven voracious demand for imports.
Without weekly U.S. export data from the USDA because of the
government shutdown, cancellations have become guesswork for the
Traders have missed two weeks of the U.S. export sales data,
used as an indicator of export demand. On Friday, they had to
cope without the monthly supply and demand report.
"We don't know what kind of export volumes we're doing, and
we don't have a crop condition report. There's a lot that's
uncertain right now," said Jobe Moss, a broker with MCM Inc. in
"But there's just way too much cotton. The climbing stocks
are telling us the new direction is probably going to be down
for this market."