MUMBAI (Commoditiescontrol) – Cotton prices on the Intercontinental Exchange ended firm last week on short covering by managed money supported by US export sales data and expectations building around the US-China trade negotiations.
The most active May cotton contract ended up 1.4% for the week at 76.58 cents per lb. From a low of 74.89 to the US dollar on Monday, prices went to touch a three-month high of 77.82 later in the week. Volumes stood at 16,993 compared with 17,964 a week ago. The July and December contracts both ended up 1.4% on week at 77.57 cents and 75.30 cents respectively.
Prices had begun rising since Monday amid hopes that China would continue to emerge as a buyer of US cotton. The US Department of Agriculture’s cotton sales data for the week ended 14 that was released on Thursday seemed to provide some comfort to the market, pushing up prices to a three-month high.
Data showed that cotton sales for the week stood at 125,000 RB, with China turning out to be a net canceller. However, traders took some solace from the fact that China was a net buyer for Pima cotton worth 13,700 RB out of the total sales of 22,100 RB. For the new crop, net sales were 32,800 RB with China buying 15,400 RB. With this, US exports now stand at 89% of its projected aim.
Now, there is a general consensus is that the export target could be well within touching distance if the US-China deal goes through soon. As of now, comments from various officials in China and US suggests that the deal could get delayed as far as June, a timeline that has been factored in by markets.
By the end of the week, traders took advantage of the rise in prices and booked profits at higher levels.
Data released by the US Commodities Futures Trading Commission data for futures and options combined showed managed money traders trimmed their net short positions by 9,189 to 10,818. While trade increased their net short position by 9917 lots. Open interest for the week stood at 272,646, up 6,159 on week.
This week, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are said to be headed to China next week for further trade talks according to media reports. Any developments from China will be closely monitored for cues on the deal.
Another important trigger for the market will be USDA’s 2019 planting estimates on Friday which will detail the acreage that producers intend to plant this season. Lower-than-expected acreage owing to the recent weather playing spoil-sport could spike up prices.
According to a Bloomberg survey, US farmers are likely to plant cotton in 14.4 million acres in 2019 compared with 14.1 million acres a year ago.
The weather too could be crucial for planting that begins sometime in June-July in some northern states of the cotton belt. There is an alert issued until May 25 with major flooding expected. If the persistent wet weather continues in mid-west and southern parts of the US, cotton plantings would most likely be replaced by corn.
Prices are likely to remain firm due to short covering in spot month contract by managed money and call fixation by mills as rollover from May to July contract is likely to begin soon. But gains could be limited as trade is likely to increase their shorts in December contract in order to hedge their new crop positions.
In coming week market will be looking Weekly export sales data and the planting estimates for further direction. The resistance to the May contract is likely around 77.43 cents and 78.28 cents.
(By Commoditiescontrol Bureau)
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