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Weekly: ICE Cotton Loses Last Week’s Gain As Experts Watch CCI Move, Virus Development; Advise Options Trade

16 Feb 2020 11:52 pm
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Mumbai (Commodities Control) – ICE Cotton closes the week about 0.5% lower. Cotton futures fell to a one-week low on Friday as investors tried to gauge the coronavirus epidemic's impact on China's economy, with cases continuing to mount. The week ending 7th February had marked the first ever positive closing after 3 consecutive weekly declines.

Cotton futures posted 23 to 34 point losses by Friday’s close. Cotton contracts for March settled down 34 points at 67.41 cents per lb, having earlier hit 67.21, their lowest since Feb. 7. May Cotton closed at 68.41, down 22 points. March-May spread stood at 100 points, up from last week’s spread at 39 points.

With the expiry of March contract this Friday, May contract comes to the fore-front; traded in a 175-point range between 67.66 and 69.41 cents.

The week began by inching higher amid slow trade. Market had pinned hopes on WASDE report, which helped it end 37-60 points higher. March contract upped 44 points to close at 68.19 cents. ICE cotton managed to crawl up its way on Tuesday as investors left virus fears behind. March Cotton barely settled 4 points higher at 68.23 cents.

Contrary to the expectation, the WASDE report showed a big jump in world-ending stocks by 2.53 million bales to 82.12 million bales. This was accompanied by larger production and lower mill use. Demand forecast was lowered by 1.21 mn bales versus January forecast of about 119 mn bales.

Australian and Indian exports were lowered, while Brazil and Pakistan showed the biggest changes on the production side. China accounted for a 1.0 million bales drop in mill use due to the coronavirus situation.

Amid all the bearish WASDE report, cotton futures did close over 1-week high on Wednesday as speculators continued to focus on 200 Day Moving Average. The fibre managed a double digit positive settlement; 35-51 points higher as March contract ended at 68.58 cents/lb. However, Thursday marked a big fall for the week. Cotton futures fell more than 1% on Thursday after a sharp rise in coronavirus cases in China rekindled fears of its impact on the global economy, overshadowing positive export sales data from the U.S. government. The market finished lower amid outstanding exports-sales data. Cotton contracts for March settled down 83 points at 67.75 cents per lb; biggest one-day percentage decline since Jan. 31.

USDA’s weekly sales of 350,000-plus were the second marketing-year-high report of the last three weeks. Vietnam was the largest export destination with net new sales of 149,400 bales. Sales to China showed a net reduction of 48,300 bales, as new sales of 92,500 bales were offset by cancellations of 140,800 bales. Shipments of 400,500 bales were down 4% from the previous week, but up 20% from the prior 4-week average.

Experts observed that, neither disappointing WASDE report nor strong U.S. export sales could leave its mark on the weekly cotton trade.

Local demand is little softer due to the headlines on the coronavirus," said Rogers Varner, president of Varner Brokerage in Cleveland, Mississippi, adding there was also some uncertainty over agricultural purchases under the Phase 1 U.S.-China trade deal.

Beijing on Friday imposed a 14-day self-quarantine on people returning to the city from holidays to prevent the spread of the new coronavirus, while 5,090 new cases were reported in mainland China.

The Chinese economy will grow at its slowest rate since the financial crisis in the current quarter, according to a poll of economists, who said the slowdown would be short-lived if the outbreak is contained.

Cotton futures had climbed to a more than eight-month high of 71.96 cents per lb on Jan. 13, bolstered by optimism around the Phase 1 trade deal, which is due to go into effect 30 days after its Jan. 15 signing.

"We could go back to 66.75 cents per lb fairly easily ... Prices are not going up until we have a reason for the specs to buy," said Jim Nunn, owner of Tennessee cotton brokerage Nunn Cotton.

"Prices got to the 50-day moving average and stalled and then we had the coronavirus news and the market goes right back down."

Meanwhile, market is keeping an eye on India’s exports and CCI’s procurement that has reportedly touched 6.1 mn bales. In an exclusive interview with commoditiescontrol.com, CCI Chairman made the big declaration of procuring as much cotton as was required, knocking the reported ‘10 mn bales’ target out. Despite the procured (and auction) price being higher than current market price, market is wary of the massive Indian cotton inventory overhang to keep a lid on price gains.

Along with this, US stock markets continued to post new record highs this week lending some cushion to cotton market.

On the negative side of the economic data, U.S. Commerce Department reported the worst apparel sales in 10 years. The apparel industry is already facing a tough start to 2020. One retail think-tank is suggesting the ill-buying patterns are the result of the U.S. consumer clearly not prioritizing their buying of their goods and products, and not the result of an economic malaise or a lack of spending power.

However, the fact the nation is facing the second warmest winter in 29 years, consumers are buying fewer winter clothes to stock their closets. Thus, receipts at domestic clothing stores fell some 3.1% last month, the most since March 2009.

Experts don’t see much change going forward and feel trade will be in charge of the market. However market is unable to overlook Coronavirus issue, as China’s economy takes a big hit. There’s a lurking monster of global recession, if the virus manages to take over developed nations. Thus, it is recommended to look the options way of trading for a while.

Certificated cotton stocks deliverable as of Feb. 13 totaled 32,152 480-lb bales, up from 32,066 in the previous session.

The weekly Commitment of Traders report from 11h February showed that Cotton speculative traders were 33,880-contracts net long on Feb 11. For the week, 1652 managed money longs were gone and 2097 on the short side. With the current net long, it’s up for 9th consecutive weeks. The open interest for the week ended 11th February stood at 249,025 contracts, down 43,725 contracts from the previous week.

Meanwhile, all U.S. financial and commodity markets will be closed on Monday. Moreover, the U.S. Government, the Federal Reserve and the U.S. Postal Service will be closed as well.

Support and Resistance for Cotton #2 lies at 67.64 cents and 69.28 cents/lb, respectively.

(Commodities Control Bureau)

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