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Weekly ICE cotton: Ends Slightly Down; Weekly Export Sales Disappoint

28 Oct 2019 12:38 am
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange slightly down despite the trade optimism surrounding the US-China deal as the weekly export sales reported lower-than-expected numbers.

The most active December cotton contract ended down 0.4% at 64.90 cents per lb. Volumes in the December contract stood at 16,398 compared with 16,479 a week ago. The March 2020 contract ended up 0.02 cents to 65.83 cents per lb.

Cotton prices started the week on a bearish note anticipating a healthy harvest report. The US Department of Agriculture released its weekly report which showed harvesting in the 15-cotton growing states had picked up to 40% compared with 32% a week ago and 38% a year ago.

The “good” rating of the crop was at 33% compared with 30% a week ago, while the “excellent” rating remained steady at 8%. The “fair” rating of the crop slipped to 36% compared with 41% a week ago.

However, prices soon gained as the US and China seemed to make some progress with their trade deal negotiations.

On Tuesday, Reuters reported that China had offered major local and international soybean processors tariff waivers on imports of up to 10 million tonnes of US soybeans. This led to expectations that demand for cotton too may pick up once the US-China trade deal goes through.

US President Donald Trump too expressed optimism over the trade deal, hinting at a possibility that it may be signed in November when the two leaders meet.

The wet weather in Texas aided some short-covering during the week on views it could slow down the harvesting in the largest cotton-producing state in the US.

However, my mid-week prices tumbled noting the disappointing weekly export sales data for the week ended Oct 17. The US Department of Agriculture released the weekly export sales which showed net sales for 2019-20 stood at 140,500 RB, down 32% on week and 23% from the prior 4-week average. For 2020-2021, net sales were at 8,400 RB, while exports of 148,600 RB were down 2% on week. The high-grade Pima cotton fared better with net sales totalling 7,000 RB, up 53% on week, but down 1% from the prior 4-week average.

Some traders also turned cautious over the US-China trade deal, paring some of the earlier gains in cotton.

By Friday, sentiment picked up following the US Trade Representative’s statement that the US and China were making “headway” in finalising the trade deal.

“They made headway on specific issues and the two sides are close to finalizing some sections of the agreement...Discussions will go on continuously at the deputy level, and the principals will have another call in the near future,” the USTR said.

When asked about the deal on Friday, US President Donald Trump told reporters, “We’re doing very well…we’re moving along nicely. We’re dealing with them right now.”

However, this news wasn’t enough for prices to rise sharply as market participants seemed to exercise caution until the final deal has been inked.

Data released by the US Commodities Futures Trading Commission data for the week to October 22 showed managed money traders reduced their net short positions by 6,749 contracts narrowing their total net short positions sharply to 4,629 contracts. Open interest for the week stood at 307,828, down 3,126 on week.

This week, prices are likely to trade with an upward bias in the run-up to the meeting of the two leaders of China and the US at the Asia Pacific Economic Co-operation Forum meeting being held mid-November in Chile. However, a sharp rise may get limited as traders will also remain cautious as the recent history suggests that the trade deal has fallen through even at the last minute. Continued healthy progress in the harvesting of the crop could also limit the rise.

The support and the resistance for the December contract is seen at 64.42 cents and 65.54 cents respectively.

(Commoditiescontrol Bureau)

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