Recent price movement

Movement in global prices was mixed over the past month.

Prices for the most actively traded December futures contract surged higher in late June， climbing from levels near 65 cents/lb to over 67 cents/lb. In recent trading， values retreated below 66 cents/lb.

The A Index increased marginally over the past month， rising from 72 to 74 cents/lb.

After holding tightly to values near 98 cents/lb for the past several months， the CC Index dropped 97 cents/lb in July. In local terms， the CC Index decreased from 13，300 to 13，200 RMB/ton）.

Indian spot prices for the Shankar-6 variety changed little last month. In international terms， values ranged between 67 and 70 cents/lb. In local terms， prices moved between 33，000 and 35，000 INR/ candy.

Pakistani spot prices decreased. In international terms， values fell from 65 cents/lb to 57 cents/lb. In local terms， prices dropped from 5，500 PKR/maund to 4，800 PKR/maund.

Supply， demand， & trade

The latest USDA report included a series of important revisions to figures for both the 2014/15 and 2015/16 crop years. In terms of production， updates to global figures were relatively small， with the 2014/15 figure increasing 120，000 bales （from 118.9 to 119.0 million） and the 2015/16 figure increasing 140，000 bales （from 111.3 to 111.5 million）. Larger， downward， revisions were made for mill-use， with the global figure for 2014/15 dropping 610，000 bales （from 111.5 to 110.9 million） and the figure for 2015/16 dropping 875，000 bales （from 115.3 to 114.4 million）. Higher production and lower consumption led to increased projections for ending stocks， with the estimate for 2014/15 rising 1.0 million bales （from 109.9 to 110.9 million） and the estimate for 2015/16 rising 2.0 million bales （from 106.1 to 108.1 million）.

Most of the revisions to global milluse figures stemmed from changes made for China. Chinese mill-use estimates fell 1.0 million bales for 2014/15 （from 35.0 million to 34.0 million） and 1.5 million bales for 2015/16 （from 36.0 million to 34.5 million）. Reductions to 2015/16 consumption figures were also made for Brazil （-250，000 bales， to 3.8 million）， Bangladesh （-150，000， to 4.6 million）， and Pakistan （-100，000， to 11.0 million）. Partially offsetting these declines were additions for Vietnam （+650，000 bales， to 4.8 million） and India （+500，000， to 26.3 million）.

Several of the changes made to milluse figures were echoed in revisions to 2015/16 import estimates， with forecasts for China （-250，000 bales， to 5.8 million）， Bangladesh （-100，000， to 4.5 million）， and Pakistan （-200，000， to 1.5 million） all moving lower while the projection for Vietnam moved higher （+800，000 bales， to 5.0 million）. The most notable updates to 2015/16 export estimates for 2015/16 included those for India （-300，000 bales， to 4.7 million）， the U.S. （+100，000， to 10.8 million）， and Brazil （+200，000， to 3.8 million）.

Price outlook

An official announcement from China detailing the reserve sales program was released in early July. One million tons （4.6 million bales） of Chinese and foreign-grown cotton held by reserves will be put up for sale. The Chinese grown cotton being offered comes from the 2011/12 （330，000 tons or 1.5 million bales） and 2012/13 （470，000 tons or 2.2 million bales） crop years. In addition， 200，000 tons （920，000 bales） of imported cotton held by the reserve system will be made available.

Auction prices vary according to crop year. Chinese fiber grown in 2011/12 has a base price of 13，200 RMB/ton （97 cents/lb）. Chinese fiber grown in 2012/13 has a base price of 14，200 RMB/ton （104 cents/lb）. Foreign-grown cotton， which is estimated to be comprised primarily of U.S. and West African varieties， will be offered with a base price of 15，500 RMB/ ton （113 cents/lb）. Sales began July 10th and are scheduled to continue through August.

Indications are that some rotation of reserve stocks may occur， with 40% of the volume sold at auction eligible to be taken up by reserves at market prices. Expectations are that any additional cotton taken into the reserve system will come from the 2015/16 harvest. This eventual volume could be limited， considering that the prices being offered for older， reserve-held， cotton are near current market values and that mills have expressed little interest in buying from reserves in previous auctions due to quality and logistical issues. In the last round of reserve sales （November 2013 through August 2014）， it was not uncommon for Chinese mills to purchase less than 20% of the daily volume put up for sale. On the first day of sales for the current auction， 29% of the cotton offered for sale was purchased （8，704 tons out of 30，285 offered for sale）.

Altogether， the parameters for the current round of reserve sales do not suggest a major shift in prices， reinforcing statements made by Chinese officials that price stability is a priority. However， maintenance of auction prices near current levels should make it difficult for reserve stocks to be significantly reduced any time in the near future. In addition， and perhaps more importantly for the global market， the maintenance of Chinese prices at a large premium relative to international values inhibit a rebound in Chinese mill-use.

There have been increases in consumption outside of China， most notably in India and Vietnam， but those gains have not been sufficient to make up for the fifteen million bale drop in Chinese mill-use since 2010/11. Despite being the fourth consecutive year of increased consumption， global mill-use in 2015/16 is forecast to be ten million bales lower than the amount spun into yarn in 2006/07. In the absence of a collapse in Chinese prices and a corresponding jump in Chinese consumption， questions remain about the trajectory of global demand growth.