MUMBAI (Commoditiesontrol) –Ice cotton closed in red ever since President Trump surprised the market on last Sunday threatening to increase existing tariffs from 10% to 25% on 200 billion dollars of Chinese goods and to levy a 25% tariff on an additional 325 billion dollars of goods that haven’t been taxed so far. Fall accelerated on Thursday when it was confirmed that tariff will be increased and on Friday when the tariff was finally increased market lost another 2.5 %.During the week ICE July contract lost 7.23 cents/lb or 9.55% at 68.45 cents/lb. Whereas December contract lost 5.05 cents/lb or 6.78% at 69.4 cents/lb.
Now immediate fear of the market is outstanding sales for China which is 0.81 million for old crop and 1.4 million bales for the new crop will get canceled. If this happens then US current year crop balance sheet, which was getting tight due to robust US export sales week on week, will show surplus inventory. This was reflected in July December spread which shifted 123 points backwardation/inverse to 95 points contango/carry.
The markets paid little attention to the US Department of Agriculture’s weekly export sales data which showed sales for the week to May 2 were up 63% on week at 235,800 RB. Turkey (78,800 RB), Vietnam (56,400 RB), and India (26,900 RB) were the top buyers. For the 2019-2020 crop, net sales stood at 56,500 RB with exports to Mexico (24,300 RB), China (19,800 RB), and Thailand (11,900 RB). Exports were up 32% on week to 387,100 RB. Sales of the high-grade Pima cotton, however, fell 84% on week to 2,100 RB.
Wasde report published on Friday was bearish for the market. The WASDE report estimated US 2019-20 production at 22 million bales with higher exports of around 17 million. Ending stocks are pegged at 6.4 million bales, around 1.8 million bales higher than the previous year or equivalent to 32% of use, which is the highest stocks to use ratio since 2008-09, USDA said.
For 2018-19, USDA revised the production estimate lower by 250,000 bales from the April estimate to 14.75 million bales. World production and consumption were decreased by about 500,000 bales from last month. Meanwhile, production is seen lower in India, which is likely to offset an increase in Brazil, USDA said
Data released by the US Commodities Futures Trading Commission data for the week to May 7 showed trade used this opportunity to cover their short position and fix their cotton on-call sales position . Trade added long position by 5440 contracts and reduced short position by 11053 contracts thereby reducing net short position by 16943 lots to 73410 contracts. On the other hand, Managed money reduced long position by 5166 contracts and added short position by 9922 lots resulting reversing their net long position to net short position of 4841 contracts. There was a reduction in cotton on-call sales position for July contract by 4617 contracts to 34868 contracts.
Break down of US-China talk is likely to slow down the global economy which will eventually impact cotton demand along with this favorable US weather will push the market further down.
Technically ICE July contract has broken the important support level of 70.65 and next target is 66.13cents /lb. Support and resistance for this week is 66.13 and 72.98cents/lb
(Commoditiescontrol Bureau)
Technical Analysis
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