Weekly: US Cotton Rides On Bullish Trend Amid Supportive Fundamentals

MUMBAI (Commoditiescontrol) – U.S. cotton futures during the week (May 14 to 18) rose 2.28%, or 1.93 cents to 86.55 cents per pound, highest level since June 2014, buoyed by higher demand and weather concern in U.S. & China. On-call report showed that still a hefty 4.96 million bales unfixed on July as on May 11. The market has rallied 30% since October.

The spread between July and December futures has expanded to 412 points on May 18 from 358 points a day ago is giving an indication of bullish movement to continue ahead. However earlier it contracted 10 straight session from 684 points (May 4) to 358 points (May 17).

Weather in China this month has not been favourable for early cotton development across Xinjiang, the nation’s largest cotton producing region. Weather issues this month include lower than normal temperatures, heavy rains, high winds and blowing sands. Also form China, the nation’s export value of all textile goods was notably higher in April Vs Mar.

Cotton planting in U.S. as on May 14 stood at 36%, up 5% from 31% of 5 years average. Planting have made good progress in Texas as well, but dry weather concern persists.

Texas has received some light shower recently, but still a major area reeling under drought like condition and crop loss concern is lingering. U.S cotton production is expected to fall short in 2018-19 season (Aug-Jul) against last year level.

U.S. Dollar Index rose 1.26% this week at 93.58. The index hit its highest level in 2018, its best such stretch since the period ended April 27. As of now, the dollar is also on track for its best month since November 2016. The strengthening dollar index may act as resistance for cotton.

May 14 (Monday): ICE July cotton settled down 0.92 cent, or 1.09 percent, at 83.70 cents per lb on producer selling amid concerns of high world ending stocks excluding China.

May 15 (Tuesday): Most-active July cotton rose 0.06 cent, or 0.07 percent, at 83.76 cents per lb as good crop plantation numbers were offset by dry weather concerns in Texas.

May 16 (Wednesday): ICE cotton July futures gained 0.59 cent, or 0.70 percent, at 84.35 cents per lb, biggest one-day percentage gain in nearly 2 weeks, on worries over crop damage in China's major cotton growing region of Xinjiang following heavy rains.

May 17 (Thursday): The most active ICE cotton contract for July expiry settled up 0.68 cent, or 0.81 percent, at 85.03 cents per lb on higher demand for the natural fiber and on concerns of extreme weather conditions in major cotton growing regions in the United States and China.

May 18 (Friday): Cotton futures closed Friday at their highest point since 2014 as traders bet that poor growing conditions internationally could lead to a global shortage. July cotton settled 1.8% higher to 86.55 cents a pound at the ICE Futures U.S. Exchange on Friday, closing at their highest point since June 2014. The market has rallied 30% since October.

WEEKLY EXPORT SALES
U.S weekly net export sales during the week ended May 14 dropped 21% at 155,342 running bales (RB), while shipment was down week-on-weak by 17% at 434,435 RB. Export cancellation stood at 35,000 RB, up from 19,800 RB a week ago.

Total shipment during the 2017-18 so far reached at 11.37 million bales (480lb), which is 73.4% of revised USDA's target of 15.50 lakh bales. Total outstanding now stood at 5.83 million bales. Total seasonal commitment reached at 111% at 17.20 million bales.

Shipments will need to average 287K RBs per week in order for the USDA’s target to be realized. Total sales against 2018-19 were again large at 229,335 RB; sales against 2018-19 currently stand at a running total of almost 4.20 million bales (480lb).

CFTC – ON-CALL SALES
The latest on-call report showed that still 4.96 million bales unfixed on July as of May 11, which is a considerable amount since only about 4 weeks remain to square these fixations away. Additionally, there are already 11.34 million bales in unfixed on-call sales from December onwards, which will act as a strong layer of support below the market.

The CFTC report revealed, dated May 15, showed Money managed players net long positions reduced first time in last six weeks, but it is still substantial at 89,260 lots from 97,865 lots previous week. On the other hand, the trade shorts rose over 8% to 194,366 lots. Likewise, the trade shorts declined over 4% to 184,860 lots as against 194,366 lots a week ago.



CONCLUSION
Mills have to fix nearly 5 million bales of July on call sales in next 3-4 weeks mills, which has the potential to put upward pressure on the market. Trade short are unlikely to give up easily and may prefer rolling to December contract, but since fundamentals are strengthening with crop concern in U.S and China, the bulls may have upper hand in the days to come.

TECHNICAL IDEAS: ICE JULY COTON: Expect Higher Range To Be Tested

Hold long position with a stop loss of 81.35. Expect higher range of 88.31-92.55.





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