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Weekly ICE Cotton: Prices End Firm On Hopes Of Improving US-China Trade Relations

18 Aug 2019 9:27 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended firm during the week on hopes of some progress in trade relations between the US and China after the former deferred tariff hikes on Chinese goods to December. The strong weekly export sales data along with the extremely hot temperatures in the cotton-growing belt in the US also helped prices up.

The most active December cotton contract ended up 2.1% at 60.13 cents per lb. Volumes in the December contract stood at 12,707 compared with 12,322 a week ago. The March 2020 contract ended up 1.4% to 60.72 cents per lb.

Prices were weak at the beginning of the week following the World Agricultural Supply and Demand Estimates for the month of August released by the USDA National Agriculture Statistical Service.

The WASDE report pegged US cotton production in 2019 at 22.5 million, up 23% on year. All cotton planted area so far was 13.9 million acres, up 1% from the July estimate but down 1% from 2018. All cotton area harvested was forecast at 12.6 million acres, up 24% from 2018. In a surprise move, the USDA increased exports by 200,000 bales to 17.20 million bales. Global stocks were increased by 2 million bales to 82.45 million led by higher US production.

The USDA also released the weekly crop quality report which showed the rating of 15 cotton-growing states stood at 47% in the week to August 11, up compared with 44% a week ago. The excellent rating stood at 9% compared with 10% a week ago. However, the markets did not show much reaction to the crop quality report and instead focussed on the big announcement made by the US of deferring the tariffs on Chinese goods to December.

On Tuesday, the United States Trade Representative announced that some products such as clothing and cell phones will not face additional tariffs of 10%. In fact, they will be removed from the tariff list based on “health, safety, national security and other factors”. Other tariffs will be delayed to December 15 from September 1 scheduled earlier for certain goods.

Media reports quoting the Chinese Commerce Ministry that Vice Premier Liu conducted a conference call on Tuesday with the US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, Chinese Commerce Minister Zhong Shan, and Chinese Central Bank Governor Yi Gang also helped sentiment.

These developments have led to expectations that China could start buying US agricultural commodities.

Warnings by the National Weather Service about the heat-wave in the south and mid-west US also kept prices firm. The agency had forecast temperatures to remain high for the week.

Thursday, prices touched a two-week high following the strong weekly export sales data released by the US Department of Agriculture for the week to August 8. The data showed net sales for 2019-20 at 329,100 RB with Bangladesh (120,400 RB), Vietnam (76,700 RB), Turkey (41,900 RB) among the top three buyers. Reductions were reported for China (13,300 RB). For 2019-2020, net sales of 151,200 RB were primarily for China (117,900 RB), Mexico (16,300 RB), and Vietnam (14,500 RB). Exports of 274,200 RB were primarily to Vietnam (57,700 RB), India (46,500 RB), Turkey (43,500 RB), Bangladesh (30,500 RB), and Indonesia (21,500 RB).

Net sales reductions of Pima cotton were detailed at 3,800 RB as increases were more than offset by reductions for Bangladesh (4,400 RB). Exports of 12,500 RB were primarily to India (4,400 RB), Thailand (2,400 RB), Pakistan (2,000 RB), and Indonesia (1,000 RB).

Prices soared yet again on Friday after Trump said US and Chinese negotiators were holding "productive" trade talks and are likely to meet in September.

"September, the meeting is still on as I understand it, but I think more importantly than September, we're talking by phone, and we're having very productive talks," Trump told reporters.

Thursday, China's foreign ministry spokeswoman Hua Chunying said, "We hope the US will meet China halfway, and implement the consensus of the two heads of the two countries in Osaka."

Data released by the US Commodities Futures Trading Commission data for the week to August 13 showed managed money traders reduced their net short positions by 2,786 thereby narrowing their total net short positions to 44,642. Open interest for the week stood at 291,680, up 10,532 on week.

This week, prices are likely to remain cautious amid comments from the US and Chinese officials on the trade relations. The traders will also eye the weekly crop quality report that will be released on Monday. If the crop continues to maintain its rating, prices could soften to around 59.65 cent levels.

(By Commoditiescontrol Bureau)

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