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Weekly ICE cotton: Ends Slightly Down On Fresh Short Selling

3 Nov 2019 6:35 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange slightly down despite the trade optimism surrounding the US-China deal and reports of crop damage in US due to adverse weather conditions as managed money were seen increasing their net short position again after the week ending September 24.

The ICE December contract closed in red for the second consecutive week giving up 67 points to close at 64.23cents/lb while March 20 contract closed at 65,64 cents/lb with loss of 19 points. The December-March spread strengthened to 141 points from previous weeks 93 points.

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 46% compared with 40% a week ago and rolling five years average of 43%. The month-end factor also restricted participants to carry long positions.

The market moved up sharply by 98 points on Wednesday ahead of the release of US export sales data and start of the fund roll over from December To March contract But next day market gave up 126 points on disappointing export sales numbers. This was mainly due to cancellation of 70,000 RB from Indonesia. US net cotton sales were at 108,100 RB for the week ended October 24 in the marketing year 2019/2020, down 23 percent from the previous week and 39 percent from the prior 4-week average.

Data released by the US Commodities Futures Trading Commission data for the week to October 27 showed managed money traders increased their net short positions by 1469 contracts 6098 contracts. At the same time trade reduced their net short position by 1860 contract to 35162 contracts. Open interest for the week stood at 3012492contract up 4664 contracts on the week.

Recent gains of about 1000 points from August lows are mainly due to short covering by managed money. News of an impending trade settlement with China and the potential for a smaller U.S. crop encouraged profit taking by managed money who were short in the market. It is evident from their net short position which was around 40429 contracts on the week ending 27th august reduced to 4629 contract on the week ending 22nd October. This rise could be sharp but there was the corresponding sale by trade who increased their net short position to hedge new crop from net short position of 2561 contracts to 37022 contracts for the week ending 22nd October. Since short-covering by managed money is almost complete and in fact, they have started to add fresh short position if the market is to sustain current levels there should be fresh buying stimulus to absorb the trade selling at higher levels who have to hedge their current year crop position.

Next week market will be looking for crop progress report on Monday and export sales data on Thursday. But the most important data will be monthly demand-supply numbers which will be released on Friday. As per some trade participants USDA has overestimated current crop numbers and may revise down production numbers third month in a row.

Markets may get support from reports of crop damage in India due to unseasonal Monsoon rains. Further any positive development in US-China trade talks will give a boost to prices in the short term.

Support for December contract is at 64 cents/lb and resistance is at 66 cents/lb.

(Commoditiescontrol Bureau)

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