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Weekly: ICE Cotton Ends Lower Amid Doubts Over US-China Trade deal

24 Nov 2019 10:24 pm
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MUMBAI (commoditiescontrol): Cotton prices on the Intercontinental Exchange (ICE) ended down last week amid doubts over US-China phase one trade deal and on rollover from December to March contact ahead of December contract going into the delivery period from 22nd November.

The ICE most active March contract closed 184 points down at 64.85 cents/lb for the week while May 20 contract closed at 65.94 cents/lb with a loss of 193 points. The March-May spread was at 184 points.

Cotton prices traded in the red for the whole week except for the last trading session on Friday. For the whole week, main factors that influenced market sentiments were US-China trade talk and rollover of December contract. On Friday markets recovered some of the losses as rollover of December contract was over by Thursday and statement form President Trump that phase one deal with China is "potentially very close” led to some bargain hunting and short-covering which helped market recover some of its losses.

On Monday USDA reported the weekly harvest data for the week ended Novemeber17 which showed harvesting improved to 68% compared with 52% a week ago and five year average of 66%.

The USDA updated weekly export sales for cotton on Thursday, revealed that for the week ending Nov 14, a total of 227,600 RB were sold, which was 34% behind last week’s multi-year high for weekly sales but still it was the third-largest for current Marketing Year. The shipments were higher at 137,886 RB which raised the accumulated MY shipments to 2.748 MRB, which is 14.44% above last year’s pace and the highest through the first 16 weeks of the MY since 2008/09. Cancellation was around 40,000 bales mostly from China. The US is 65% committed and 18% shipped Vs the USDA projection.

While data released by the US Commodities Futures Trading Commission data for the week to November 19 showed managed money traders reduced their net short positions by 1166 contracts to 13,106 contracts and Trade reduced their net short positions by 4057 contracts to 23,402 contracts. Open interest for the week was down by 12477 contracts at 2,52,370 contract.

In spite of decent export sales numbers, downside in the last week is indicating that the market has started discounting large crop and multi-year high US closing stock even if exports continue at the current rate throughout the marketing year.

On the other hand, arrival of Indian crop is likely to pick up in the days to come. It is very difficult for government to keep market prices around the MSP despite the CCI has targeted procurement of one crore bales cotton. In this situation government will either have to give some export incentive for raw cotton and yarn or farmers will be compelled to sell at lower price. This may make Indian cotton competitive in export market which in turn will give competition to US cotton and will put pressure on global cotton and ICE cotton prices.

Market may remain firm in the short term as contract roll over pressure is now over and on optimism of the US-China trade deal but the current price may not sustain on the backdrop of huge crops in the US and India.

Support for March contract is at 63 cents/lb and resistance is at 65.75 cents/lb.

(Commoditiescontrol Bureau)

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