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WEEKLY: Limited Upside Likely Ahead In ICE Cotton

2 Sep 2019 9:52 am
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MUMBAI (Commoditiescontrol) - Most active cotton December contract on ICE closed with gains of 62 points at 58.83cents/lb. Whereas March 20 contract was up by 29 cents at 59.44 cents/lb. December/March spread was 74 points.

Cotton traded in a range of 290 points (high 59.49 and low 56.59) during the week. The uncertainties of the US-China trade situation weighed on the market during the week whereas likely disruption in supply due to Hurricane Dorian supported the market.

Cotton made a low of 56.59 cents/lb on Monday weighed by last week’s tariff impositions by the US and China on each other. However, prices recouped some of their early losses after US President Donald Trump said both the countries would soon restart trade talks. By Tuesday market was able to recoup it losses and touch a high of 59.49 cents/lb on Tuesday.

Crop progress report was released by US Department of Agriculture late Monday for the week ended August 26. The report showed that the crop condition for the 15 cotton-growing states in the US deteriorated further, with the "good" rating slipping to 35% from 41% a week ago. The "excellent" rating remained unchanged at 8%, while the "fair" rating improved to 40% from 36% a week ago. Texas’ "good" rating slipped to 28% from 36% a week ago.

The market managed to close in the green for rest of the week except Friday on concerns of deteriorating crop condition and concerns of further damage of crop in US Southeast due to Hurricane Dorian. The concern of losses due to Hurricane Dorian was so strong that the market ignored weak cotton sales and export numbers published during the week. On Friday market closed with some minor losses due to long weekend. Markets will remain closed on Monday on account of Labor Day holiday.

Hurricane Dorian which has now strengthened to category 5 hurricane is likely to bring abundant rains in the southeast US which contributes about 20% of US cotton production. Heavy rains at this stage when cotton bolls are opening may impact yield and quality of crop.

The latest CFTC report for futures and options combined showed that speculators reduced their net short potion by 770 lots to 40429 lots where as trade reduced their net short position by 1356 lot to 2561 lots .Open interest was 285289 lots up 10051 lots from last week.

Impact of Hurricane Dorian will be known this week. If it affects crop in Southeast we may see some short-covering buy managed money. Further market is in oversold condition so any short covering will lead to some improvement in prices. But the upside is likely to be limited due to large US crop and slowdown in the demand of cotton mainly due to US-china trade war and global recession.

Major support for the week is 57cents/lb and resistance is 60cents/lb.

(By Commoditiescontrol Bureau)

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