Weekly: ICE Cotton Jumps 3% This Week On Crop Damage Concerns; Volatility Likely Ahead

MUMBAI (Commoditiescontrol) – ICE cotton futures this week (Oct 8-12) gained nearly 3% after five straight weeks of fall due to report of significant crop damage in Georgia followed by better U.S. weekly export sales report and weak dollar index.

The most-active December cotton futures rose this week by 2.98% at 78.37 cents per pound after trading in the range of 76.15 to 78.88 cents per pound.

In the afternoon/night of October 10 and the early hours of October 11, Hurricane Michael wreaked havoc in southwest, central and parts of east Georgia and took an exceptional toll on Georgia’s agricultural economy, especially the cotton crop.

Producers are reporting losses anywhere from 25% to a total loss, depending on location in the state, as well as structural and equipment losses and damage.

Georgia is the second largest cotton producer in the US with an estimated 2.9 million bales and this storm could not have come at a worse time since almost all of the cotton was open, with only about 20% harvested.

The US dollar was on the back foot, alongside stocks and as US data did not impress. Dollar index this week fell as much as 0.6% at 94.91.

USDA SUPPLY-DEMAND HIGHLIGHTS
USDA in its October report, released on Thursday surprisingly increased U.S. cotton crop estimate to 253 lakh bales (170kg) or 43.03 lakh tonnes from 252.06 lakh bales or 42.85 lakh tonnes pegged in September report.

Production for 2018/19 is forecast down, led by Australia more than offsetting slightly higher production in Greece. Trade is projected lower on slower exports from Australia, the United States, and Brazil with less import demand in Turkey. Global use is down slightly led by Turkey. U.S. production is up slightly with larger stocks. The U.S. season-average farm price is lowered 2 cents to 73 cents per pound.



WEEKLY EXPORT SALES
U.S. cotton weekly export sales for the week ended October 4 rose 341% week-on-week at 110,679 Running Bales (RBs) for MY 2018-19 (Aug-Jul), whereas shipment increased by 14% W/W at 209,463 RBs.

Cancellation this week remained modestly on the lower side at 85,000 RBs versus 92,500 RBs a week ago.

Total shipment for the season so far reached at 10.9% at 16.96 million bales (480lb), whereas outstanding stood at 51.3% at 7.95 million bales.

Total commitment for MY 2018-19 now reached at 9.65 million bales.

The pace of weekly net sales for the week was higher than required to match to achieve USDA export target of 15.5 million bales, whereas shipment pace was slow.

Overall data is supportive for ICE Cotton. The most active December cotton rose 1.5% at 78.39 cents per pound in electronic trade.

CFTC ON CALL REPORT
The latest CFTC on call sales report for the week ended Oct 5 dropped further by over 2% at 13.66 million bales for all contracts, with sharp reduction of 12% witnessed in December contracts at 2.46 million bales. On the other hand, unfixed call purchases against all contracts increased by 1.6% at 4.5 million bales, however producers purchases against December contracts reduced by 4.6% at 1.89 million bales.

The current on call sales and purchases report is likely to continue to offer some support at current trading levels, but is also not suggestive of explosive upward movement potential.

CFTC COT REPORT
The CFTC commitments of traders (COT) report for the week ended Oct 9 suggests that trade net short positions dropped for the tenth straight week by 2.5% week-on-week at 11.76 million bales. The shorts are getting out may be due to concern about the extensive loss to cotton crop after Hurricane Michael.

Managed money (index funds) have meanwhile reduced net bullish positions for a fourth straight week by 7.6% at 4.95 million bales.

The market at present is balanced and a tug of war between bulls and bearish is likely to get more intense ahead as crop damage fears will provide boost to the bulls, but there are negative flows that could provide wings to bears as global economy is confronted with an emerging market crisis, trade disputes and jittery stock markets.

CONCLUSION
The cotton market has moved up in line with our previous week report and now volatile week is expected ahead due to mixed fundamentals. However, cotton prices may bounce back more in case financial market behaves positively, but in case the stock market doesn't provide positive cues than speculative selling is likely to continue.

TECHNICAL IDEAS - ICE DECEMBER COTTON - COVER SHORT POSITIONS

Cover short position at 78.37 as the opportunity arises.

On weekly chart, Morning Star candlestick pattern has been formed indicating a swing bottom which suggests that near term rise to 79.45-82.18 can be witnessed with volatility.

Contrarian buy can be undertaken on weaker opening and correction first to 77.8-76.72 as the opportunity arises with a stop loss of 75.



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