Weekly: USDA Report To Provide Direction To US Cotton Next Week

MUMBAI (Commoditiescontrol) – ICE cotton futures closed down for the fifth straight week (Oct 1-5) mainly due to concerns about slowdown in exports and continued speculative liquidation. The strengthening dollar has also weighed on natural fibre prices.

The most-active December cotton futures settled a tad down this week at 76.10 cents per pound, while recorded losses of around 7.4% during the last five weeks and nearly 20% from peak of 94.82 cents per pound in June 2018.

The daily volume in December contract remained mostly dull thoughout the week with exception on Monday, Oct 1, when it rose sharply by 31,645 lots, whereas daily volume averaged at 15,589 lots. Daily average open interest this week stood down at 135,973 lots versus 137,078 lots.

Dollar index on Friday came under downside pressure after the US economy added 134K jobs during last month, less than initially projected. Despite the current knee-jerk, the index manages well to keep gains for the second consecutive week so far.

The USDA’s latest crop progress report showed light harvest progress for the week ending Sept 30, with harvest advancing 3 percentage points (ppts) over the period to 19% complete – 3 ppts ahead of the rolling 5-year average.

Harvest operations were active across the Mid-south and much of the southeastern states over the weekend, but rain and showers are likely across the Mississippi River Delta on Sunday. At the time of writing this report, skies are overcast, according to Louis Rose, director of research and analytics at Memphis, Tennessee-based Rose Commodity.

ICAC OCT MONTH REPORT HIGHLIGHTS
 Global cotton area projected to decrease 2% to 33.4 million tonnes
 Global yields expected to decrease 1% to 777 kg per hectare
 Global production projected to decrease 4% to 26 million tonnes
 Stocks in China are at their lowest level since 2011/12 (Full Report)

WEEKLY EXPORT SALES
U.S. weekly export sales for the week ended September 27 dropped 68% week-on-week at 25,094 Running Bales (RBs), while shipment jumped w/w by 28% at 184,460 RBs.

Sales cancelations increased against the previous assessed period at almost 92,500 RBs, nearly all of which were attributable to China, which has canceled more than 140,000 RBs since Sept 13.

The pace of weekly export sales is well below the required to achieve the USDA's export target for the season 2018-19.

Total shipment for the 2018-19 stood at 9.4% at 14.81 lakh bales (480lb), while outstanding was at 51.3% at 8.05 million bales. Total commitment for the season reached at 60.7% at 9.53 million bales against the USDA’s target of 15.7 million bales.

Demand from other key destinations too were not encouraging may be due to financial issues in emerging markets. The depreciation in currency of the emerging market is also one the factor as imports of raw material will get costlier making competition in the international market even more stiff to gain share.

CFTC ON CALL SALES
The unfixed on call sales during the September 28 for all contracts dropped for a second straight week at 13.98 million bales, with most reduction was observed in December contract, which now stood at 2.80 million bales. On the other hand, producers purchases against all contracts rose to 4.43 million bales, but producers purchases in December contract fell at 1.96 million bales.

The on-call sales commitments are slightly positive and may offer some support to cotton prices at lower levels.

CFTC COT REPORT
Bears (trade shorts) net positions for the week ended Oct 2 have dropped by nearly 9% week-on-week at 12.06 million bales (480lb), whereas hedge index funds too have reduced bullish bets by 13% at 5.36 million bales.

The bears have been rewarded for their patience during the last three months after holding positions for a long period as market turned sharply higher against their positions. Trades shorts are getting out as they have reduced bets for the ninth straight week. Meanwhile, index funds too have reduced bullish bets on uncertain demand outlook and ahead of USDA monthly supply-demand report.

USDA will release monthly world supply-demand report on October 11 and now both bulls and bears are waiting patiently as it will provide them needed catalyst to push prices either side.

LOWER INDIA CROP ESTIMATES
Industry body Cotton Association of India (CAI) in first its first estimates pegged country’s 2018-19 (Oct-Sept) cotton crop at 348 lakh bales versus 365 lakh bales. (Full Report)

CONCLUSION
ICE cotton prices are expected to find some support at prevailing levels in the next week, but uncertainty still looming due to gloomy economic conditions in emerging markets, which is likely to keep market sentiments nervous. Meanwhile, market players are keenly awaiting USDA supply-demand which will gauge future market direction.

TECHNICAL IDEAS - ICE COTTON DECEMBER

Further Weakness Is Below 75.37.

Traders short and holding the same can maintain the stop loss at 77.20.

Further weakness is below 75.30 closing.

Resistance will be at 77.08-77.20.

If sustains above the Monday’s open and above 77.20 then expect near term pullback towards WRV-79.74.



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