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Weekly ICE Cotton: Prices End Firm; US-China Trade Talks, Fed Meet Eyed

28 Jul 2019 11:27 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended up last week on news that US officials will be heading to China this week, fuelling hopes of a trade deal between the two countries.

The most active December cotton contract ended up 2.3% at 64.54 cents per lb. Volumes in the December contract stood at 10,043 compared with 15,069 week ago. The March 2020 contract also ended up 2.3% to 65.46 cents per lb.

Early on during the week, prices had an upward momentum following media reports that top negotiators from the US are likely to head to China sometime between July-end to August 1 to further take the trade talks ahead. However, China has demanded all tariffs on its products be removed.

These reports were confirmed by Treasury Secretary Steven Mnuchin the following day pushing the December contract to a two-week high of 64.68 cents. Mnuchin told reporters that negotiators including himself and Trade Representative Robert Lighthizer will go to Shanghai this week to continue talks with China. Mnuchin added that a “lot of issues” remain to be resolved.

Monday, Bloomberg also reported quoting unnamed sources that China is considering boosting its purchases of US soybeans.

The market seemed to ignore the weekly crop status report, which has been consistently showing a good crop.

Last week’s Crop Progress report from the National Agricultural Statistical Service showed cotton crop condition in the 15 states stood at 50% good, up from 47% a week ago and 32% a year ago. Around 10% of the crop was rated excellent, up from 9% a week ago and 7% a year ago. Texas was rated 48% good and Georgia was given a 52% good rating.

The below-average rainfall in India in the week ended Wednesday also pushed up prices on expectations it may hit the crop in India. Rainfall during the week was 35% below normal, bringing the total deficit during the season to 19%.

Gujarat, the top cotton-producing state in the country, received 47% below normal rains during the week.

Prices did not react strongly to the US Department of Agriculture’s weekly export sales data for the week ended July 18 released on Thursday. Data showed sales for 2018-19 were at 163,000 RB, sharply up compared with 54,000 RB a week ago. New crop sales or net sales for 2019-2020 stood at 208,000 RB with purchases to Vietnam (133,300 RB), China (11,500 RB), Indonesia (10,700 RB), Bangladesh (10,500 RB), and Pakistan (7,600 RB). Exports were at 318,300 RB, up 3% on week, while net sales reductions of Pima totalled 800 RB, compared with the record reductions of 5,800 RB a week ago.

The marginal purchases by China left the market unimpressed which was expecting bigger numbers.

Meanwhile, there was also news of some Chinese textile mills being allowed to purchase a total 50,000 tons of US cotton without paying the 25% retaliatory duty, which led to some cheer in the cotton market. However, some of the cheer was dented as China continued to sell 10,043 tonnes of cotton at its state auctions.

Data released by the US Commodities Futures Trading Commission data for the week to July 23 showed managed money traders were net short by 960 contracts taking their total net short positions to 45,230 contracts. Open interest for the week stood at 256,156, up 10,071 on week.

This week prices are likely to trade with an upward bias as traders will keenly eye the developments in Shanghai between the US and China.

The weekly crop status report could also offer some cues.

The Federal Reserve’s interest rate meeting on Wednesday could also lend some direction to the markets. The Fed is largely expected to cut rates after data showed last week that the US economy slowed to 2.1% in Apr-Jun compared with 3.1% the previous quarter.

A good spell of rains in India could offer some resistance to prices as an IMD official last week indicated that rainfall in the next few days could be above-average.

The December contract is seen moving in the wide range of 63.21-65.27 cents range this week.

(Commoditiescontrol Bureau)

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