Mumbai (Commodities Control) – For the week, NY cotton July and December contracts lost 195 points each. Weak demand outlook driven by bearish equities and WASDE report primarily pulled the fibre downwards.
ICE cotton futures eased on Friday and marked their worst week in 11, as the market continued to grapple with a dim demand outlook. Cotton contracts for July fell 18 points to 59.84 cents per lb, erasing slight gains from earlier in the session. The contract fell over 3% this week, the biggest weekly percentage drop since March 27. December Cotton closed at 59.03 cents, down 46 points. The July-December spread was inverted 81 points vs inverted 71 points last week.
Two important reports of the week failed to raise fibre’s sentiments.
WASDE report was bearish adding to the pressure on cotton prices. World cotton balance sheet for both current and next year shows decreasing consumption and rising ending stock. The most significant revision to this month’s U.S. cotton supply and demand estimates is a 200,000-bale decrease in 2019/20 mill use, to 2.5 million bales.
World consumption in 2020/21 is revised downward due to changes in a number of countries, led by a 1-millionbale reduction in the forecast for China and a 500,000-bale reduction for India. At nearly 105 million bales, world ending stocks in 2020/21 are expected to be their largest since 2014/15.
U.S. Export Sales was decent over 6 lakh bales for combined both years, however shipment is not at required pace so target for current year does not look achievable. Large commitment will be carried forward to next marketing year.
Looking through the entire week, Monday settled 98 and 61 points lower for front month and active ICE futures. The weakness continued through Tuesday. Rising U.S.-China tensions and USDA’s Crop Progress report that showed cotton was 78% planted on June 7, which was up from 66% last week, also weighed. The 5-yr average is to be 81% planted by this time. The 2020/21 cotton squaring was 13%, 3% ahead of the 5-yr average. By second half of the week, ICE cotton dipped under 60 cents for July and December futures.
Meanwhile Indian physical market remained soft. Cotton Spot Rates were seen declining during this week. Arrivals are good and ginners are willing to press more. CCI is the only regular buyer, supporting the market.
Gujarat May month average daily pressing was around 24 ,000 bales and first half of the June also pressing pace is equal or more. Daily Gujarat arrivals were nearly 25,000 bales a day or even more.
All India arrival was nearly 60,000 to 70,000 bales a day. All India cotton sowing till 11th of June was 18.913 lakh hectares against 15.318 lakh hectares last year on same time.
However, in a fundamentally disappointing market, fund buying continued to pace up along with reduced shorts. This was the second week when Managed money was net long. According to CFTC data for the week ended 9nd June, managed money’s net position was at 6520 contracts long. Meanwhile, open interest lowered 4149 contracts at 236,446 contracts.
"Demand is slow even though major economies are opening up. The retail sales numbers show that," said Keith Brown, principal at cotton brokers Keith Brown and Co in Moultrie, Georgia.
"If we see there are hints of those (USDA demand) numbers coming true, cotton might fall and head down to 48 cents by mid-July," Brown added.
The coronavirus pandemic brought the global economy to a standstill, in turn hammering demand for apparel and contributing to an increase in cotton inventories and a resultant 13% dip in prices so far in 2020.
While a potential drought in West Texas could keep U.S. cotton prices strong compared with other origins, "ultimately the entire cotton complex will head south under the weight of all these unsold stocks," said British merchant Plexus Cotton, in a note on Thursday.
Experts see a higher probability of prices heading southward from current levels. However, it is advised to only use put options or put spreads to operate in the current environment.
Support and Resistance for Cotton #2 lies at 58.43 cents and 59.93 cents per lb, respectively.
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