WEEKLY: US Cotton Slips On Demand Worries; Futures Tone Still Uncertain

MUMBAI (Commoditiescontrol) – ICE cotton futures could not able to capitalise the gains occurred during the last couple of weeks as demand concern pulled prices lower during the week ended Friday (Nov 5-9). The most active December cotton futures finished the week with a loss of 0.9%, or 0.70 cents at 78.09 cents per pound. The contract during the week hovered between 76.83 to 80.50 cents per pound.



USDA has come out with November supply-demand estimates. World cotton production was revised 2018-19 (Aug-Jul) lower by 1.6% month-on-month at 260 lakh tonnes (or 1529 lakh bales of 170kg) versus 265 lakh tonnes (or 1558 lakh bales) in October estimates.

The lower global cotton crop was attributed to revision in India, U.S. and Pakistan production. India cotton output for 2018-19 season was pegged down 2.4% at 61 lakh tonnes (or 358 lakh bales) from 62.49 lakh tonnes (or 368 lakh bales) estimated a month ago.

USDA cut U.S. crop outlook by 6.86% at 55.08 lakh tonnes resulting from the storm damage in the Southeast, while adverse weather condition in Pakistan prompted the agency to trim Pakistan cotton output by 2.41% at 17.42 lakh tonnes.

The lower production in these nations were slightly offset by higher production in Benin, taking global production tally at 260 lakh tonnes versus 265 lakh tonnes estimated a month ago in October, down 3.5% from 269 lakh tonnes in 2017-18.

USDA also lowered domestic cotton consumption for 2018-19 for countries like India, Pakistan and Indonesia (see table below).

The agency has also cut imports for Vietnam, Indonesia and Turkey, while raised import outlook for Pakistan.

The trade war with China and large cancellation for 2018-19 by world largest cotton consumer forced USDA to cut its export forecast for U.S. by 3.2% at 32.66 lakh tonnes, whereas it has raised export outlook for Brazil and Australia due to expectations of better demand from China.



US WEEKLY EXPORT SALES
US weekly net export sales and shipment for week ended Nov 1 increased week-on-week to 97,251 Running Bales (RBs) and 154,401 RBs for 2018-19, but the pace is slow to match the USDA’s export projection.

U.S. is now 65% (9.58 million bales 480lb) committed and 15% (2.26 million bales) shipped against the USDA export estimates of 15 million bales.

Sales cancelations were again significant at nearly 63,800 RBs, the vast majority of which continue to be attributable to China (57,300 RBs).

The latest export sales report was sluggish compared to match USDA export projection and thus considered as bearish for ICE cotton.

CFTC : ON CALL COMITTMENT
Mill on-call commitments against all active contracts contracted modestly for the week ending Nov 2 at around 13.4 million bales (480lb). Producer commitments against all contracts were also reduced slightly at just above 4.4 million bales. Mill commitments against the Dec and Mar contracts are approximately 5.75 million bales Vs approximately 2 million bales of producer commitments, which should provide some support to the Mar contract.

CFTC: COMITTMENTS OF TRADER (COT)
The latest CFTC report for the week ended November 6 revealed that trade shorts have increased bearish bets by nearly 1% week-on-week at 11.19 million bales (480lb), whereas index funds have cut bullish bets by 3.1% at 4.62 million bales, whereas speculators have also trimmed long positions by 7.2% at 0.73 million bales.

The latest data is somewhat bearish as trade have increased bearish bets, while hedge funds and speculators have reduced bullish bets.

US DOLLAR INDEX
US dollar index rose fourth week and it recorded gain of 0.4% this week and nearly 2% in last four weeks amid optimism about positive U.S economy. Commodities become expensive incase of strength in dollar. Investor should also have to closely watch U.S dollar index movement as further rise may pressure cotton prices.

CONCLUSION
The trend in cotton is still unclear on worries about slowing global economic growth followed by weakness in emerging markets currencies. The other side of coin is indicating bullish signal after USDA trimmed cotton crop outlook for U.S., India and Pakistan. Cotton is expected to hover between 76-80 level range and either side breakout is likely to provide edge to bulls or bears.

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