WEEKLY: ICE Cotton Plunges To 5-Month Low On Bearish Fundamentals

MUMBAI (Commoditiescontrol) – U.S. cotton futures extended losses for the fourth straight week (Sept 24-28).

The fall was significant for the second consecutive week as they plunged 3.5% mainly due to concern about demand amid week export sales report against the backdrop of escalating trade war between the two largest economics U.S. and China followed by strong dollar after fed increased interest rates by 25 basis points. Prices also dropped to their 5-month low during the week.

The most-active December cotton futures this week fell as much as 3.5%, or 2.76 cents at 76.37 cents per pound. The contract during the week traded within range of 76.27 to 79.60 cents per pound.

The daily average volume in December this week dropped sharply by 25.42% at 14,240 lots, whereas open interest fell by just over 3% to an average at 137,602 lots.

Similarly, daily average volume in all cotton contract declined this week by nearly 26% at 21,856 lots. Also, open interest shed by 1.6% at 248,705 lots.

The drop in volume is indicating lesser interest of market participants in falling market, whereas the open interest was slightly down may be due to short covering as prices have collapsed nearly 20% from the peak of 94.82 cents per pound on June 8.

The dollar climbed to a two-week peak versus a currency basket on Friday, as concerns about the Italian budget weighed on the euro while the greenback drew support from an outlook for multiple U.S. interest rate hikes until 2020.

U.S. data on Friday all supported the view of an economy that is on a stable growth path. U.S. consumer spending rose 0.3 percent last month after an unrevised 0.4 percent gain in July, while a measure of underlying inflation remained at the Fed's 2 percent target for a fourth straight month.



WEEKLY EXPORT SALES
U.S. weekly export sales for the week ended Sept 20, dropped by 23% week on week at 77,585 Running Bales (RBs) for MY 2018-19 (Aug-Jul), whereas shipment fell by 9% at 143,639 RBs, according to USDA latest report.

Net cancellations stood at 138,000 RBs versus 148,900 RBs a week ago.

Total shipment so far reached at 12.93 lakh bales (480lb), which is 8.2% of USDA's target of 15.7 million bales. Total outstanding sales against projected export of USDA stood at 52.3%, whereas total commitment for MY 2018-19 season reached at 60.6%.

The sales and shipment both are much lower than required to meet USDA export target of 15.7 million bales.

The data was negative of ICE cotton resulting sharp losses amid increased sales cancellations.

CFTC ON CALL
Mill on-call commitments against all active contracts dropped 4.4%, or 6.58 lakh bales at 14.36 million bales (480lb) for the week ended Sept 21. Producer commitments against all contracts were near unchanged at approximately 4.33 million bales. Mill commitments against Dec contracted fell nearly 15%, or 5.34 lakh bales at 3.06 million bales versus just less than 2 million bales of producer commitments. Hence, the market has found recent support from the mill aggregate position, but the mill position continues to lose power to support the ICE Dec contract moving forward.

CFTC COT REPORT
According to latest CFTC report for the week ended September 25, trade short have cut net bearish bets by 4.65% at 13.22 million bales (480lb). Similarly, index fund has also reduced net bullish bets by 2.7% at 6.15 million bales.

Trade shorts have got good opportunity as they were paid for their long patience and now they are gradually reducing bearish positions at the lower level, whereas index funds were forced to get rid of bullish positions amid sharp losses and weak outlook.

CONCLUSION
Concerns about demand from China, strong dollar, sales cancellations and new crop harvest are likely to keep cotton prices under pressure. However prices at prevailing levels have turned attractive for overseas buyers, which may prompt some good buying from other destinations than China. Rising crude oil is also somewhat supportive for cotton. However, the trade war is likely to dominate cotton market compared with other positive factors.

TECHNICAL IDEAS - ICE COTTON DECEMBER - Expect Lower Range To Be Tested

Exit long and sell on rise from 76.37-78.56 with a stop loss of 79.70.

Resistance will be at 77.41-78.56.

Lower range can be at 75.24-71.90.



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