MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended down during the week weighed by the failed US-China trade negotiations despite efforts by US President Donald Trump to assuage markets and promise a deal.
The most active July cotton contract ended down 3.6% cents to 65.99 cents per lb. The December contract also ended down 3.6% at 66.38 cents per lb. Volumes in the July contract stood at 21,156 compared with 17,913 a week ago.
Prices started on a weak note at the beginning of the week as China retaliated to the hike in US tariffs by imposing tariffs on $60 billion of US goods from June 1. It has now raised tariffs on 5,000 US products with rates in the range of 5-25%.
The move spooked markets, with stock indices markets across the globe and major US commodities registering a fall.
By Tuesday, US President Donald Trump tweeted and assuaged markets, promising a deal with China “when the time is right”.
There was some respite for the market mid-week following the modest export sales data.
The US Department of Agriculture detailed US export sales for the week ended May 9 which showed net sales for the old crop stood at 226,900 RB, down 4% from the previous week, but up 8% from the prior 4-week average. For the new crop, net sales stood at 176,400 RB. Although exports of 362,800 RB were down 6% from the previous week, from the prior 4-week average it was higher by 9%.
Net sales of the high-grade Pima cotton were recorded at 8,200 RB, sharply higher from 2,100 RB the previous week.
As expected, China was largely absent from purchases except for 1,000 RB of Pima cotton. So far, total sales are at 104% of the export target aim.
By Friday, the market was back to fretting over the US-China deal as the US government banned Chinese telecommunications giant Huawei.
Meanwhile the extreme weather conditions in central parts of US provided some support to prices. Over the weekend, several storms and downpour occurred in these parts. According to the National Weather Service’s Storm Prediction Centre at least 10 tornadoes have been reported through Saturday evening, all in Oklahoma and Texas.
Data released by the US Commodities Futures Trading Commission data for the week to May 14 showed trade add 12,444 contracts in a long position and reduced 21,695 contracts in shorts position thereby taking their net short position to 39271 contracts lowest in recent times. This indicates trade has a negligible unhedged position that means they see limited downside from here and don’t seed sense in hedging .Where as Managed money reduced their long position by 5514 contracts and add short of 14473 contracts taking their net short position to 24828 contracts up 19987 contracts from last week. Open interest for the week stood at 277,172, up 10,008 on the week. Cotton on call unfixed sales were 6852 contracts.
Monday is expected to be the most violent of the weather outbreak with risks to central and western Texas, Oklahama, and Kansas, according to Accuweather which is likely to keep prices firm.
It should be noted that market fall was restricted to a great extent by short covering by trade and fixation of cotton on-call sales against short selling of managed money but now the short position of trade and cotton on-call sales has reduced substantially in this condition if managed money continues to sale aggressively as last week we may see a sharp fall again in cotton prices.
Market may get some temporary support on weather concern which may delay planting but the overall market is expecting crop estimates may further increase from current 22 million bales. The support and the resistance for the July contract is seen at 66.07 cents and 66.48 cents respectively in the near term.
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