An important consideration in regards to the above is that when forward sales are made, they typically consist of tenderable qualities, such as 21s, 31s and 41s with premium mike, while discounted grades are only offered after the crop has been harvested. We therefore believe that a majority of these 15.5 million bales in commitments consists of tenderable grades.

NY futures rebounded this week, as July gained 205 points to close at 92.34 cents, while December moved up 110 points to close at 81.94 cents. Trade #

 

However, this season yielded only about 7.5 million certifiable bales, plus an estimated 2.5 out of the 3.9 million bales from beginning stocks, which adds up to a total of 10.0 million bales. It is therefore quite conceivable that there are no tenderable bales left to play the cert. stock game.

 

We will find out soon enough, as First Notice Day for the May contract is next Thursday, April 24th. Even though the certified stock is approaching 300’000 bales, it remains to be seen whether it will actually be made available or whether it is just for show like in March. And even if the current owners were to let it go, there would probably be some takers now that the May/July spread has gone to more or less full carry.

 

It looks like the market has once again been underestimating China’s willingness to import cotton - for a fourth season in a row. In March China imported another 1.02 million statistical bales, bringing total imports for the first eight months to 9.92 million bales so far. Even though the press put a negative spin on the March import number, since it was the lowest reading since November, we would argue that if China continued to import a million bales a month for the remainder of the season, it would amount to 14.0 million bales, or 2.0 million bales more than the current USDA estimate. 

 

In other words, Chinese imports are still too strong at the current pace and will therefore further deplete already tight ROW inventories. Considering that the Chinese government is in the process of issuing an additional 2.8 to 3.7 million bales in processing trade quotas at the moment and that potentially another 1.5 million bales in sliding scale quotas may be granted based on a Reserve auction ratio, it becomes clear that China will remain a strong factor on the trade front. 

 

Although it may defy logic that China would let its stockpile grow even larger than it already is – and by allowing all these quotas that’s exactly what's going to happen – the trade has learnt the hard way that it doesn’t pay to bet against China. 

 

So where do we go from here? As May enters its notice period next week anything can happen, although the availability of carryings should ensure that there are going to be some takers if certified stock were to be made available, which is still a big IF in our opinion.