MUMBAI (Commoditiescontrol) – Cotton prices on the Intercontinental Exchange ended firm during the week despite a correction in a couple of sessions as US-China trade deal’s timing turned out to the major trigger for the market.
The most active May cotton contract ended up 1.6% for the week at 75.50 cents per lb. From a low of 73.05 cents at the beginning of the week, prices went on to touch an over one-month high of 75.98 cents during the week. Volumes slipped to 14,096 compared with 19,153 a week ago. The July contract ended up on week 2.7% to end at 76.60 cents.
Monday, trade was lackluster amid low volumes following a neutral March crop report by the US Department of Agriculture the previous week. For 2018-19, US opening stocks estimates, production, consumption, and ending stocks were all left unchanged at February’s levels.
Through most of the week, the only major trigger seemed to be the trade negotiations between US and China. Contradictory comments from US and Chinese officials kept markets on tenterhooks.
Thursday, prices fell as it became increasingly apparent that the final trade deal pact would get pushed beyond March. However, by Friday, markets recovered factoring in the possibility of a delayed date.
The dollar also weakened following weak US manufacturing output data for February and after a majority of British MPs rejected a “no-deal” exit from the European Union. The dollar index slipped 0.7% against a basket of currencies during the week. As the dollar weakens, it makes the commodity prices valued in US dollars cheaper for holders of other currencies. In this case, it may get cheaper for other countries to import cotton from the US.
Fears that India--the world’s largest cotton producer—may run out of exportable surplus following its huge export order to China earlier this month also kept prices firm. A likely fall in India’s cotton production by over 11% to 328 lakh bales for the 2018-19 season also prevented prices from softening. The severe drought-like climate in western India, which accounts for the bulk of cotton production in the country, is said to have hit yields.
Markets also ignored the US weekly cotton sales data despite China emerging as a buyer. According to data released by USDA, export sales for the week ended March 7 rose 46% on-week to 166,100 RB, but lower by 48% on year. China was the largest buyer with 49,300 RB.
If China continues to emerge as a buyer this week as well, prices may get an upwards push as it could indicate fundamental factors at play with demand from the world’s largest cotton importer. Most economic indicators in China point to a slowdown there which may impact its purchases going ahead.
Reports of a huge storm and rain Texas which is likely delay planting also supported prices.
In the wake of uncertainties surrounding the trade pact, traders avoided taking a call on positions as was indicated by the US Commodities Futures Trading Commission data. Open interest data for futures and option combined for the week ended March 12 showed an increase of only 114 lots to 266,487. Managed money traders liquidated their long position by 1703 lots and added 3 lots to their short position thereby increasing net short on positions by 1706 lots to 20,007lots. Indicating that managed money is liquidating long position on rise but holding their short positions.
Trade is likely to be range-bound this week until further cues emerge from on next crop season. Cotton could face resistance at around 75.23 and 76.48 levels if the current uptrend continues.
(By Commoditiescontrol Bureau)
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