U.S. Weekly: U.S Cotton At 4-Year Higher; Volatility Ahead Likely

MUMBAI (Commoditiescontrol) - ICE cotton futures rose nearly 3 percent this week to hit a four-year high on various positive cues such as strong demand, worries over lack of high quality cotton for delivery to the exchange and exports commitments, dry weather in Texas along with higher amount of on call sales.

ICE JULY COTTON HIGHLIGHT DAY BY DAY
April 30 (Monday): The most active ICE cotton contract for July expiry settled down 0.67 cent, or 0.79 percent, at 83.84 cents per lb after 4 straight session of gain amid stronger dollar even as traders kept a watch on rain forecasts in major cotton growing regions of Texas.

May 1 (Tuesday): July expiry cotton settled higher 0.64 cent, or 0.76 percent, at 84.48 cents per lb supported by stronger demand for the natural fiber, amid concerns of lesser rain in the major cotton growing regions of Texas.

May 2 (Wednesday): Cotton July futures closed up 0.2 cent, or 0.24 percent, at 84.68 cents per lb, to touch their highest point in over a week on expectations of strong export sales data due on Thursday, amid concerns of less rain in the major cotton growing regions of Texas.

May 3 (Thursday): U.S. cotton futures dropped on Thursday, due to slow export sales report and some profit booking at the higher level. July cotton futures closed 0.21%, or 0.18 cents lower at 84.50 cents per pound.

May 4 (Friday): The most active ICE cotton contract for July expiry settled up 2.4 cents, or 2.84 percent to hit a four-year high, at 86.9 cents per lb on worries over lack of high quality cotton to deliver to the exchange and for exports amid high demand.

ON CALL SALES
On call sales position (Where mills purchase bales on-call but do not fix prices and in turn sellers/merchants, hedge themselves creating a short position on the futures market), rose as on April 27 rose 2.39% at 16 million bales against 15.63 million bales last week, nearing to record high at 16.06 million bales on March 15.

The on-call sales in July contract tad down at 5.55 million bales versus 5.56 million bales prior week, and the increase in open interest suggests that no progress has been made this week either. Interestingly mills have not reduced positions and seems to have opted wait and watch approach with hope for something to get them out of trouble.

However, time is running tick and fast since there are only about six weeks left to get all these fixations and other short positions squared away.

The mills opting to hold shorts positions for a week or two with anticipation that speculators will give up first, but it is very difficult time as fundamentals are little on bullish side with dry weather in Texas following strong demand for U.S cotton.

CFTC – EXPORT SALES
Similarly, The CFTC report, dated May 1, showed Money managed players increasing their position 3.4%, over the week, to 89,012 lots and remained higher 7.4% from previous week at 82,871 lots. On the other hand, the trade shorts rose over 3.9% to 179,762 lots as on-call position rose to near historical highs.

Feeding on the bullish bias is the robust weekly export net sales which reached 500,000 running bales(RB) for both marketing years. Shipments for the current MY showed good growth at 455,922 RB, during the week (April 20-26) which rose 22% from previous week’s 512,064 RB. (Full Report)





CONCLUSION
The higher on call sales in July contract with lesser amount of time left for fixation with wait and watch approach by mills so far indicating that bulls may dominate ahead, but any rain in Texas, followed by strength in dollar index or geo-political conflicts may favor bears and thus one should have keep a close eye on these factors as well.

TECHNCIAL IDEA

ICE Cotton No.2 July 2018 Weekly: Breakout Has Been Witnessed



A breakout above 85.83 has been witnessed with bullish candle.

Expect a rally to 90.50.

Weaker opening and correction first to 85.76-84.46 can be used for buying with a stop loss of 81.35.

(By Commoditiescontrol Bureau; +91-22-40015533)