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Weekly: ICE Cotton Ends up; Awaits US-China Trade Deal Details

15 Dec 2019 9:38 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange closed the week with modest gains on supportive US trade data and optimism of the US-China trade deal. Most active December contract traded in a range of 247 points before settling 80 points up for the week. The market closed up for the third consecutive week.

The ICE most active March contract closed up 80 points at 66.80 cents/lb for the week while the May contract closed at 67.97 cents/lb with a gain of 112 points. The March-May spread was up from 85 points previous week to 117 points.

The market were steady to firm throughout the week on with the support of bullish WASDE report and strong export sales data and lastly in anticipation of US-China deal going thru. March contract touched high of 67.89 cents/lb before the announcement to of the trade deal on Friday but gave up the gains and closed in red as deal lacked clarity only positive from the deal time being is that US and China both have agreed to cancel the scheduled increase in tariff on each other’s product thereby halting the seventeen-month-old trade war.

On Monday USDA detailed the weekly harvest data for the week ended December 8th revealed 89% of cotton harvest to have taken place and Louisiana wrapped up 100% of the harvest. This was the last weekly Crop Progress report for the 2019 season.

The WASDE report released on Tuesday was supportive for the market (USDA) scaled-down its forecast for global cotton production in 2019/20 to 121.11 million bales (1 US bale = 218kg), compared to 121.94 million bales projected in November. It also lowered world ending stock to 80.3 million bales compared to last month's estimate of 80.8 million bales and US ending stock from 6.1 million bales to 5.5 million bales. But the decrease in production was largely offset by a reduction in global consumption by 1.22 million bales to 120.27 million bales. Most of the reduction of about one million bales was contributed by China. The rest of the world stocks declined by .98 million bales. In the last two months, the rest of the world stock has declined by 3.37 million bales a decline of about 7%. This was the most supportive factor of the WASDE report for the markets.

Thursday’s export sales report was in line with the WASDE report. Last week’s report disappointed some traders, but net new export sales for the week ended December 5 was healthy again and shipments were actually stronger than in the past two years. Accumulated exports are still well ahead of the past two seasons, too. Weekly export sales report showed net cotton sales were at 277,100 running bales (RB) for the week up 69 percent from the previous week and 9 percent from the prior 4-week average.

Data released by the US Commodities Futures Trading Commission data for the week to December 10 showed managed money traders continued to reduce their net short position for a fifth consecutive week. They reduced their net short position by 4602 contracts to 3059 contracts. On the other hand, trade increased their net short position substantially by 11378 contracts to 38250 contracts.

Market sentiment has improved with both the countries agreeing to sign phase 1 of the trade deal. But it is unlikely to create additional global demand for cotton at the most it will shift Chines demand for cotton from other origins to the US. If the trade deal manages to revive the global economy than only it will be able to increase the cotton consumption and demand but that will be in the long run. In near term concerns of ample supply are likely to remerge and if the trade continues to sale aggressively as they have done last week prices may correct from current levels.

Support for March contract is at 63 cents/lb and resistance is at 69 cents/lb.

(Commoditiescontrol Bureau)

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