Weekly: ICE Cotton Down For Third Straight Week; Investor Eyes G20 Summit

MUMBAI (Commoditiescontrol) – ICE cotton futures dropped for a third straight week ended on Friday (Nov 19-23) as a plunge in oil prices dragged global equities and investor sentiment along, triggering concerns over global economic growth.

The most-active March cotton contract fell as much as 1.4%, or 1.07 cents to settle at 77.22 cents per pound. The contract traded within a range of 77.20 to 79.39 cents per pound. Prices fell nearly 3.5% in the last three weeks to their lowest level in 6 weeks.

The March cotton contract clocked daily average volume of 21,607 lots, down 2% from a week ago. On the other hand open interest increased by 3.4% w/w at 128,693 lots. (Note: Open interest was available for only two days due to U.S. market closure on Nov 22 for Thanksgiving Day).

Oil prices fell on Friday to their lowest levels in more than a year, deepening a rapid seven-week sell-off that has plunged crude futures deep into a bear market.

WTI has now lost 34 percent of its value from its peak on Oct. 3 to the trough on Friday. Brent has fallen as much as 32 percent.

Falling oil prices also make competing synthetic fibers - which use petroleum - cheaper and potentially dent demand for cotton.

Oil, a major commodity, underpins overall sentiment across the asset class, therefore a fall in oil prices is generally seen impacting the commodities market.

U.S COTTON CROP PROGRESS
According to most recent data released by NASS, the harvest of U.S. cotton as on Nov 18, 2018 reached at 59%, down from 73% in the same period a year ago and 69% of last 5-year average.

The harvest progress is mainly slow in Texas, Georgia, South Carolina and Kansas, according to the report.

The harvest pace in Georgia and South Carolina was mainly hurt by the Hurricane Michael in October, which has not only delayed the harvest, but affected the crop considerably. Texas, largest cotton producing region in U.S. too had witnessed adverse weather conditions during the most part of growth.

U.S WEEKLY EXPORT SALES REPORT
U.S. cotton weekly export sales for the week ended Nov 15 jumped sharply by 182% week-on-week at 236,333 running bales (RBs) for 2018-19 (Aug-Jul) marketing year, while shipment improved by 34% w/w at 156,075 RBs.

Net cancellation too improved as was much lower than recent weeks at 17,300 RBs as against 59,200 RBs a week ago.

Total shipment now reached at 17% at 2.54 million bales (480lb) and outstanding sales totaled at 50.7% at 7.6 million bales. Total commitment for the season 2018-19 now stood at 67.6% at 10.14 million bales.

The pace of weekly export sales was better and what was required to achieve to USDA's target of 15 million bales, however shipment still lagging.

The data was supportive for ICE cotton.

CFTC COTTON ON CALL REPORT
On call sales for total contracts for the week ended Nov 16 recorded steep fall thanks to sharp reduction in December. Total on call sales of all contract stood at 12.74 million bales (480lb), down nearly 5% from a week ago. Producers purchase increased a tad at 4.4 million bales. On call sales for active March contract increased by 9% w/w at 4.28 million bales, while producer purchases in the contract was up sharply 34 % w/w at 0.71 million bales.

The total on call sales are considerable higher and may offer support at the lower level, however one should keep a close eye as any more sharp reduction may create bearish opportunity.

CFTC COMITTMENT OF TRADERS (COT) REPORT
CFTC report was delayed this week due to Federal Holiday and it will be release next week on Nov 26.

CONCLUSION
Downtrend in cotton prices can’t be ruled out as strong sell off in crude oil prices has raised concern about global economic growth and cotton is unlikely to escape as reduction in global demand will certainly keep prices under pressure. However next week will be crucial as U.S. and Chinese presidents will meet at G20 summit and likely to discuss on various issues, including trade war. Any conclusive talks between the two largest economies will provide good support to cotton and push prices higher, however negative result will weigh on prices. Cotton is likely to trade in the range of 76-80 and breakout either side will trigger fresh buying/selling.

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