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Weekly ICE Cotton: Ends Up As US, China Strike “Phase 1” Of Trade Deal

14 Oct 2019 7:41 am
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended firm after see-sawing through the week in the run-up to the US-China trade talks and as the two countries agreed to “substantial deal” after months of a standoff on trade-related matters.

The most active December cotton contract ended up 3.6% at 63.88 cents per lb. Volumes in the December contract zoomed to 39,033 compared with 11,576 a week ago. The March 2020 contract ended up 3.3% to 64.45 cents per lb.

In the initial part of the week, prices see-sawed as traders awaited a slew of data and the US-China trade meeting later during the week.

On Monday, the US Department of Agriculture released the weekly harvest data as on October 6. It showed that the 15 cotton-growing states in the US have already harvested 25% of the crop compared with 24% a year ago and 16% the previous week. Data also showed that the “good” rating for the crop was at 32% compared with 34% a week ago, while the “excellent” rating was at 7% compared with 6% a week ago. The “fair” rating of the crop was at 42% compared with 40% the previous week.

The harvesting data has increased hopes of a bumper crop in the US, which could weigh down on prices in the medium term.

Some traders chose to remain light on positions ahead of World Agricultural Supply and Demand Estimates and the weekly export sales data.

Mid-week, sentiment perked up amid news reports that Chinese officials could accept a partial trade deal with the US on the condition that no more tariffs are imposed on the country. In exchange, China could offer to buy more agricultural commodities. However, with the trade meetings between the two countries in the past ending in a stalemate, market expectations remained low.

On Thursday, the USDA released the weekly export sales data for the week ended Oct 3, which showed net sales for 2019-20 were up 6% from the previous week, and up 53% from the prior four-week average. For 2020-2021, total net sales reductions of 5,300 RB were reported for El Salvador. Exports of 149,100 RB were down 4% from the previous week. Net sales of Pima cotton was higher at 9,600 RB compared with 3,800 RB a week ago and up 14% from the prior 4-week average. Exports of 10,300 RB were down 17% from the previous week. Despite the higher sales, market participants noted that exports and shipments recorded a decline.

In the WASDE data, the USDA revised the production and ending stocks lower from its September estimate.

US production was lowered below 1% to 21.7 million bales from 21.86 million bales in September due to lower output from Texas. Ending stocks in 2019-20 were revised down by 200,000 bales to 7.0 million bales with 36% of use compared with 27% a year ago.

USDA expects world production to be 130,000 lower led by a decline in output in Brazil, Pakistan, Australia, and the US even as India is expected to record a 1 million bale rise in output.

Traders, however, brushed aside these data as the US-China trade meeting was the focus of markets.

After a “successful meeting” between US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin with Chinese Vice Premier Liu He on Thursday, US President Donald Trump met the Chinese delegation on Friday.

Friday, Trump took markets by surprise by announcing a “substantial” preliminary trade deal with China, pushing up the December contract to a two-month high of 64.00 cents.

"We've come to a very substantial phase one deal," Trump said after the meeting. "We've come to a deal, pretty much, subject to getting it written."

The US also called off the tariff increase to 30% on Chinese goods, which was scheduled to come into effect this week. In turn, the Chinese authorities have promised substantial purchases of agricultural products.

"We've come to a deal on intellectual property, financial services, a tremendous deal for the farmers -- a purchase of from $40-50 billion worth of agricultural products," Trump said added.

Data released by the US Commodities Futures Trading Commission data for the week to October 8 showed managed money traders reduced their net short positions by 5,489 narrowing total net short positions to 19,306. Open interest for the week stood at 308,655, up 1,364 on week.

This week, prices could extend last week’s gains with the optimism surrounding the partial trade deal. Traders will eye for finer details on the trade deal. The frost conditions in parts of Texas could also keep prices higher. The resistance for the December contract is seen around 64.76 cents.

(Commoditiescontrol Bureau)

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