Weekly Cotton: Trend For ICE Cotton Still In Corridor Of Uncertainty

MUMBAI (Commoditiescontrol) – ICE cotton dropped for a second straight session this week (Sept 10-15) mainly due to surprise addition in U.S. crop by USDA followed by poor weekly export sales and on expectations that hurricane Florence may cause less damage than feared to the natural fiber. Further the ongoing trade war between U.S. and China continued to weigh on market sentiments. On the other hand, higher unfixed on call sales and weak dollar index this week have provided underlying support to cotton.

The most-active December cotton futures on ICE exchange fell this week by 0.2% at 81.83 cents per pound. The contract during the week hovered between 81.35 to 83.93 cents per pound. The contract so far this month traded in a narrow range with a maxiumum variation of 2.73 cents per pound.

Total daily average volume in cotton futures during the week stood at 21,574 lots, down 0.8% from 21,748 lots a week ago, while open interest rose by nearly 1% at 256,700 lots as against 254,231 lots last week. The total open interest for the same period a year ago averaged at 243,997 lots.

Hurricane Florence was the main event which impacted the market this week and it was getting some traders bulled up early in the week when it looked like it would strike the Carolinas as a Category 5 storm. However, it has since been downgraded to a Cat 2, which is still a powerful system, but clearly not as devastating as feared. There is still be a lot of rain coming to the cotton areas of North and South Carolina, where crops are probably about 50-70% open by now.

USDA WASDE KEY HIGHLIGHTS
WASDE report showed a 1.44 million bales (480lb) increase in global cotton production, of which 0.45 million came from the US. Although global output of 121.97 million bales would be the 5th highest on record, it would still be 1.51 million bales less than last season, when the world produced 123.48 million bales.

The USDA also continued to increase global mill use by 0.32 million bales to 127.94 million bales, which would be a new record. The most the world has ever used in a single season were 124.21 million bales in 2006/07. Since then global population has grown by 927 million people and it would therefore seem logical for cotton consumption to be a lot higher.

The 2018 U.S. cotton crop is forecast at approximately 19.7 million bales, 447,000 bales above the August estimate but 1.2 million bales below the 2017 crop. The larger September forecast is attributable to increased area that more than offset a lower national yield; if realized, 2018 U.S. cotton production would be the second largest crop since 2006.

With the U.S. cotton crop increase this month, 2018/19 demand was increased 200,000 bales to 19.1 million bales, which is similar to 2017/18. While the 2018/19 forecast for U.S. mill use remains at 3.4 million bales, U.S. exports accounted for this month’s increase; for 2018/19, U.S. cotton exports are projected at 15.7 million bales, slightly below last season’s estimate.

U.S. 2018/19 ending stocks are now forecast at 4.7 million bales, 400,000 bales above last season’s estimate. With the expected stocks-to-use ratio reaching 25 percent by the end of the season, the ratio would be slightly higher than both last season and the 5-year average.

WEEKLY EXPORT SALES
U.S cotton weekly net export sales for the week ended September 6 for MY 2018-19 (Aug-Jul) dropped 15% week-on-week at 87,512 Running Bales (RBs), while shipment fell by 26% W/W at 138,576 RBs.

According to weekly export sales, U.S has shipped 6.3% cotton against USDA’s target of 15.5 million bales (480lb). Outstanding now stood at 53.8%, whereas total commitments were at 60.2% of projected 2018-19 export target.

The sales data were below expectations and considered as bearish for the market.

ON CALL SALES
Total numbers of unfixed on call sales for the week ended Sept 7 increased by 0.15% at 14.97 million bales, significantly higher from 13.10 million bales same period a year ago. However, unfixed on call sales for December contract reduced by 182,500 contracts week-on-week at 3.71 million bales versus 3.19 million bales last year.

Producer commitments against all contracts were off modestly at approximately 4.35 million bales, whereas for December it fell 2 million bales; the unfixed mill position is showing signs of losing power to support the ICE Dec contracts.

CFTC COT REPORT
The latest CFTC Commitments of Traders (COT) report for the week ended September 11 revealed that producers/merchant/processors have further reduced their net short positions for the sixth straight week by 0.22% at 14.79 million bales. Interestingly, managed money has increased bullish bets by 2.3% for the time in six weeks and now their net long positions stood at 7.01 million bales.

Since managed money has increased net long positions versus reduction in net positions by producers/merchant/processors indicates that managed money has now turned optimistic about bounce back which has prompted them to increase bullish bets after five weeks.

The latest CFTC data is neutral with slow producers selling followed by increase in bullish bets by managed money players.

CONCLUSION
The overall picture in cotton market is mostly bearish, but higher unfixed on call sales with increase in bullish bets by managed money may provide some cushion, but it is still difficult to gauze the future trend. However, one should watch 80 level very closely as break down below it may create some panic selling and may push prices to mid-70s level.

TECHNICAL IDEAS - ICE COTTON - Reversal Up Above 84 Closing

Resistance will be at 83.39-84.30. Lower support range can be 80.7-78.23.

Sideways movements for last 4 week have been witnessed between 84.30 and 81.

Exit long or sell with a stop loss of 84.30. Alternatively, wait for breakout above 84.3 to trade long. Downside momentum is below 80.60. Sell can be below 80.6 with high of the week as the stop loss or 81.83.



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