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ICE Cotton Hits 3-Week Peak as Hot Weather Raises Quality Concerns

5 Aug 2020 8:03 am
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Mumbai (Commodities Control) – After a strong up day on Monday, the market has been known to retreat lower on Tuesday, but that was not the case. Besides the market’s obvious upward sloping technical trend, traders are also factoring in adverse weather and field conditions unfolding across the production belt.

On Monday, USDA lowered its crop ratings for six out of the 10 top-producing cotton states. The current weather outlook calls for hot and dry weather for most of Calendar August.

ICE cotton futures climbed to a three-week high on Tuesday, as worries about the quality of natural fiber due to hot temperatures in Texas were underpinned by a federal report.

Cotton contracts for December cotton closed at 63.98 cents, up 11 points.Prices earlier rose to their highest level since July 10 at 64.28.October Cotton closed at 63.94 cents, up 41 points. March ended at 64.63 cents, up 9 points and May 21 Cotton closed at 65.06 cents.

"Yesterday's crop progress report showed that the condition in Texas has gone down quite a bit and that could be a factor playing into it," said Bailey Thomen, cotton risk management associate with StoneX Group.

"It's really hot and dry in Texas so we are seeing a decrease in quality."

The United States Department of Agriculture's weekly crop progress report showed 45% of the crop in good/excellent condition, compared with 54% a year ago.

Hot temperatures returned in West Texas on Tuesday with most of the region above 100 degrees Fahrenheit, according to a National Weather Service bulletin

Meanwhile, lackluster demand due to the pandemic has led to a 9% fall in cotton prices so far this year, with economies reopening and a string of stimulus packages from major central banks cushioning the hit to some extent.

A weakening dollar and modest uptick in business activities have helped cotton recover a bit, Louis Rose, director of research and analytics at Tennessee-based Rose Commodity Group, said in a note.

On Thursday, USDA will issue its export sales. This week will be the last export sales data for the 2019-20 season. Supposedly, there may be a huge shuffle in the old crop numbers as more cotton was sold to China than has been delivered. Traders hope to see those undelivered bales, at least a huge portion, rolled into the new 2020-21 season. If not, the market may see large cancellations by China.

Support and Resistance for cotton #2 lies at 63.20 cents and 64.68 cents per lb, respectively.

(Commodities Control Bureau)

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