MUMBAI (Commoditiescontrol) – U.S. cotton futures dropped sharply for the third straight week due to strong sell-off amid drop in Turkish Lira, which lost 13.5% against the US dollar in just one day. This in turn raised fears of a contagion in emerging markets. Many of them have already been facing financial crisis.
ICE December contract fell as much as 4.20% to settle at 81.65 cents per pound after trading in the range of 80.61-85.31 cents per pound. Cotton futures shed nearly 14% from top of 94.82 (June 8, 2018).
The Turkish Lira is down about 70% from a year ago and currencies of US cotton importers as well as export competitors are weakening. In the case of importers like Turkey, Indonesia or China it makes it more expensive to buy US cotton, while competitors like India (Rupee at historic low this week) or Brazil gained a competitive advantage on the export front. The market is concerned about U.S. cotton export as disputes with Turkey and China will impact shipment adversely in MY 2018-19. China is the No.1 buyer of U.S. cotton, while Turkey ranked 5th in the list.
U.S Export Sales US export sales slowed down considerably last week, as net new sales of Upland and Pima cotton amounted to just 68,800 running bales for both marketing years, while shipments were at 244,900 running bales. For the current season 2018-19 (Aug-Jul) we now have commitments of a little over 8.8 million statistical bales, of which 0.3 million bales have so far been exported. Sales for next marketing year (2019-20) remained at around 1.35 million statistical bales. The US is 57% committed and 2% shipped against the USDA’s latest export projection of 15.5 million bales (480lb). On Call Sales The only key supportive factor for bulls is the 15.9 million bales unfixed on call sales, of which 5 million bales alone in December contract and this could provide some cushion from additional speculative selling. However, a lot of other factors will have to see which will determine future course of trend. Mill on-call commitments expanded for the week ending Aug 10 to nearly 16M bales against all active contract months. Producer commitments against all contracts expanded almost 200K bales to approximately 4.5M. Mill commitments against the Dec contract contracted nearly 250K bales to approximately 5M bales; the unfixed mill position continues to lend support to ICE cotton futures. CFTC COT Report CFTC cot report was out on August 14 which revealed that trade short net position reduction. Index funds and speculators have also reduced net long position during the week due to negative news flow amid escalating U.S. trade war with Turkey and China.
Trade short net positions for the week ended August 14 dropped to 15.95 million bales (480lb), still substially higher from same period a year ago. They have the reasons to wait for further downside amid gloomy economy picture. The sharp downside on ICE futures has created nervousness among Index funds and speculators, as they have reduced net long positions, which now stands at 4.29 million bales and 1.72 million bales, respectively. The ICE December cotton futures have broken some of the key important support and it will be interesting next few weeks to watch whether market breaks the physcological support of 80 level as break down below that may create panic among longs. Conclusion Although cotton prices have corrected sharply during the last three weeks, but bulls/longs have still some reasons to stay as they are likely closely watch the trade developments between U.S. and China on possible talks by month-end. Any positive outcome of the meeting will provide them much needed catalyst to drive the market on the higher side. The forecast of higher global cotton demand next season is also a positive factor that could support cotton market. However bears have upper hand at present primarily due to trade dispute, strong dollar, slow exports, weakeninig spread week-on-week. At this point a lot depends on how these trade conflicts play out and whether emerging markets can hold it together. Until we get more clarity on these issues, we expect the market to remain volatile.
(By Commoditiescontrol Bureau; +91-22-40015533)
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