Weekly: Cotton Slips This Week; Sideways Trend Likely Ahead

MUMBAI (Commoditiescontrol) – Cotton priced dropped for the week ended Friday (Dec 10-14), snapping two straight weeks of gains, mainly on concern about demand due to weak export sales, falling crude oil and higher U.S. production estimates.

Global benchmark Brent was set for a weekly loss of about 2 percent, while WTI was on track to decline 2.7 percent on worries over weak economic data from China pointed to lower fuel demand in the world's biggest oil importer.

USDA HIGHLIGHTS
United States
The report has revised down its estimates for US production, ending stocks, consumption and exports relative to last month.

US production for the 2018 crop is estimated lower by 1.35 million bales to 18.41 million bales, mainly due to decreases in the Southeast, reflecting the impact of adverse weather.

"Domestic mill use is reduced 100,000 bales and exports are reduced 500,000 bales," the USDA report said.

"Projected ending stocks in 2018/19 are 700,000 bales lower this month, at 4.3 million bales or 24 percent of use," it said.

The marketing-year-average price received by producers is forecast between 71.0 and 77.0 cents per pound, with a midpoint of 74.0 cents, 1 cent above last month, the report said.

India
The agency has lowered India's 2018-19 production estimate at 28 million bales from 28.70 million bales. It also trimmed its forecast for India's cotton exports, consumption and ending stocks at 4.30 million bales, 25.30 million bales and 8.58 million bales, respectively from 4.40 million bales, 25.50 million bales and 8.98 million bales in October.

However, the agency has retained India's beginning stocks projections at 8.68 million bales.

CFTC WEEKLY SALES
US export business for the week ended Dec 6, 2018 once again remain disappointed. Total net export sales against the 2018/19 MY (Aug-Jul) were off notably versus the previous period, while shipments were modestly lower at approximately 58,020 and 166,206 running bales (RBs) respectively.

Both sales and shipments were off the weekly pace required to match the USDA’s export projection. The US is 70% committed and 20% shipped against the USDA’s expectation.

Sales against 2019/20 were around 35,000 RBs and stand at nearly 2.14 million bales (480 lb).

Sales cancelations were significant higher around 62,600 RBs versus 41,900 RBs a week ago, most of which were attributable to Bangladesh. China was a small net buyer over the sales period.

The latest weekly export data is considered bearish for the cotton amid poor sales, shipment and large cancellations.

CFTC ON CALL REPORT
Mill on-call commitments against all active contracts were slightly higher for the week ending December 7 at approximately 12.4 million bales (480lb). Producer purchases against all contracts expanded to just above 4.1 million bales.

Mill commitments against the MY 2018/19 are approximately 9.5 million bales versus just less than 2 million bales of producer commitments, which should provide some support for ICE cotton futures.

CFTC COT REPORT
The trade modestly increased its current crop aggregate net futures short position over the most recent assay period to approximately 11.4 million bales (480lb). Managed money firms increased their futures net long position to nearly 3.9 million bales.

With respect to futures only across all active contract months, commercial traders added shorts at a ratio of approximately 2:1 versus the liquidation of longs while managed money firms covered shorts at a ratio of around 2:1 against the liquidation of longs.

The latest CFTC data indicating that cotton market may trade sideways with looking for fresh direction.

CONCLUSION
Investors are nervous as fundamentals are balanced and not favouring either bulls or bears and thus cotton prices ahead may trade sideways. Cotton market is very much nervous about demand, however market is now waiting for more clarity about exports of cotton from U.S. to China, which has already started buying soybean in bulk quantity after six months amid trade truce between the two nations on Dec 1. The falling crude oil prices is also a concern as it will make synthetic fibre more lucrative against cotton.

TECHNICAL IDEAS - COTTON MARCH - FURTHER RISE IS ABOVE 81.85

Sideways Movement was seen between the high and low range of its previous week.

Further rise is above 81.85. Support will be at 78.60.

Weakness will resume below 78.60.

Traders can buy above 81.85 with low of the week as the stop loss or 78.60 whichever is lower.

A fall below 78.6 can show a slide to test 77.18-75.60.



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