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Weekly ICE Cotton: Ends Down On US Tariffs On China, Weak Export Sales

4 Aug 2019 9:53 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended down sharply last week as any hopes of a likely trade deal between the US and China were dashed with the US threatening to impose additional tariffs on the country. The disappointing weekly export sales number added to the bearishness in the market.

The most active December cotton contract ended down 7.9% at 59.42 cents per lb, slipping below the 60-cent mark and touching levels last seen in March 2016. Volumes in the December contract jumped to 31,930 compared with 10,043 a week ago. The March 2020 contract also ended down 7.3% to 60.71 cents per lb.

Prices had been subdued at the beginning of the week in the run-up to the trade meeting between the US and Chinese negotiators in Shanghai on Tuesday.

Lack of any conclusive decisions at the meeting and the healthy weekly crop status kept prices soft.

Late Monday, the USDA’s National Agricultural Statistical Service detailed the crop progress report for the period up to Jul 28. The data showed that the crop in the 15 cotton-producing states in the US was rated 46% “good”, while 15% got rated “excellent”. The crop in Texas was rated 41% good and 18% excellent. Georgia’s crop got a 51% good rating and 10% excellent rating. The healthy US crop has led to expectations of higher ending stocks in the US.

There were also reports of Indian cotton farmers having planted 10.9 million hectares, up from last season’s 10.2 million despite the inadequate rainfall.

A mid-week short-covering ahead of the month-end and the weekly export sales led to some demand but were inadequate to quell the sharp fall on Thursday after the US President Donald Trump threatened additional tariffs on China.

Thursday, Trump tweeted that he intended to impose 10% tariffs on $300 bln worth of Chinese goods, starting September 1. He also accused China of not buying enough US agricultural commodities.

“We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to buy agricultural products from the US in large quantities, but did not do so,” his tweet said.

The latest round of hikes will be in addition to the 25% duty hike imposed on $250 billion worth of goods imposed a few months earlier.

The disappointing export sales data added to the fall. For the week ended July 15, net sales for 2018-19 were reported at 10,200 RB, down 94% on week and 90% from the prior 4-week average. For 2019-2020, net sales of 364,800 RB were primarily to Vietnam (214,000 RB), China (48,400 RB), Malaysia (22,900 RB), India (18,400 RB), and Indonesia (15,800 RB). Exports were 291,200 RB, down 9% on week and 11% from the prior 4-week average. Net sales of Pima cotton improved to 2,600 RB compared with net reductions of 800 RB a week ago.

Meanwhile, the International Cotton Advisory Council released it's August report on Thursday which projected low demand and higher production for cotton in 2019-20, which could, in turn, lead to higher global stocks.

“Global cotton consumption is projected to increase by 1.7% in the coming season, but if production grows by the expected 6%, it will exceed consumption by about 300,000 tonnes. As a result, global stocks should swell to 18 million tonnes. Those factors, combined with tepid expectations for global economic expansion, have dimmed the hopes for next season’s cotton demand,” ICAC said in a statement.

Data released by the US Commodities Futures Trading Commission data for the week to July 23 showed managed money traders were net long 1,439 contracts reducing their net short positions to 43,691 contracts. Open interest for the week stood at 258,719, up 2,563 on the week.

This week, prices will continue to remain weak weighed by the bearish factors. The improved rainfall in India could also put pressure on prices. The above-average rainfall in the month of July has narrowed the rainfall deficit to 9%, the Indian Meteorological Department said on Thursday. The IMD also said that rainfall in the country in August-September is likely to be normal.

The first support for the December contract is seen at 58.47 cents followed by 57.52 cents.

(Commoditiescontrol Bureau)

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