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grades, is not being moved to China given their appetite for ready to ship imports. Maybe the reason is that merchants prefer to use it as a tool to force carry into the market, which seems to be working, since the Dec/March spread has gone from a 300-point inversion to more than 100 points carry over the past couple of months. However, we wouldnt rule out a sudden disappearance of this certified stock just yet! Yesterday the US government finally ended its shutdown by kicking the can further down the road, hoping to find a resolution to the debt issue over the next couple of months. It will still be several days before the USDA and CFTC are up and running again, so we will have to wait a little longer before we get updated export and commitment of traders data. Despite all the negative local and international press the US is getting these days, there are a number of positives for the US economy going forward. Who would have thought a few years back that US oil production would rise to a 20-year high of 7.5 million barrels a day in 2013, thanks mainly to large-scale oil shale exploration in North Dakota and Texas. This upward trend in oil production is likely to continue and forecasts call for up to 9.5 million barrels/day by 2015, close to the record 9.6 million barrels/day of 1970. If natural gas liquids and biofuels are added to crude, then the US will become the world's biggest producer of liquids in 2013 with 12.1 million barrels/day, ahead of Saudi Arabia and Russia. Including other energy sources such as natural gas, coal, solar and wind, the US is currently meeting 87 percent of its energy needs and is on its way to become energy independent. With Canada added to the equation, it is already there! By contrast, the EU produces less than 50% of its energy needs and dependency on crude oil imports is at over 80% and for natural gas it is over 60%. This US energy boom has far-reaching economic and geo-political implications. With US oil imports at just 40 percent of 2005 levels, the US trade deficit is improving rapidly and the fact that the US can offer cheaper energy to companies than other countries is bringing some manufacturing back to the States, especially since labor arbitrage is less of a factor these days in view of improved automatization and robotics. Definitely something to consider before getting too negative on the US economy and the dollar! So where do we go from here? Prices are still in a long-term sideways trend, with long and short-term moving averages basically flatlined, volatility at a multi-year low and momentum almost nonexistent. As long as China keeps absorbing the surplus in the rest of the world, stocks outside China won't change much and the market may therefore not have a lot of wiggle room going forward. Looking out for potential game changers, a Chinese policy shift is still on top of the list, although we don't think that it would necessarily have to be bearish like most analysts believe. Weather is still a factor at this point, although harvest conditions have been surprisingly benign so far and time for something bad to happen is soon running out. All things considered we currently see no reason for the market to break out of its boring sideways trend.
Cotton reserve purchases in China have slowed as the government raises quality requirements and withholds a portion of payments until the fiber passes inspection, according to textiles research firm Sinotex.cn. China National Cotton Reserves Corp. bought 100,630 metric tons of new-crop local cotton as of Sept. 30, down 74 percent from a year earlier, according to estimates by Qingdao-based Sinotex.cn. Purchases from Xinjiang province, the top-producing region, fell 76 percent to 71,400 tons, according a report dated Oct. 4 and released during a week-long holiday in China. Farmers had sold just 3.4 percent of their crop while the harvest was 21.6 percent complete as of Sept. 15, Sinotex said. Two calls today to the reserves corporation seeking comment werent answered. Some cotton companies have slowed down purchases from farmers or stopped altogether because theyre struggling to meet the new standards, Sinotex said. The government started this seasons stockpiling program on Sept. 9, buying cotton from companies when market prices stayed below 20,400 yuan for five straight days. Qualified companies buy from farmers first, then sell the cotton to the government through a trading platform. Cotton futures for January delivery on Zhengzhou Commodity Exchange were little changed at 19,930 yuan a metric ton ($1.48 a pound) at 11:29 a.m. local time. The contract is currently the most active and has closed below 20,400 yuan a ton since inception at the start of year. Prices on the Chinese bourse compares with 83.70 cents a pound on ICE in New York, where futures have advanced 11 percent this year on concern that global output is dropping.
The government this year will withhold 500 yuan a ton of payment for cotton until the fiber and the packaging is judged to have met quality standards, according to a statement on Sept. 9 by the China National Development and Reform Commission.
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