Mumbai (Commodities Control) – After facing triple digit losses last week, NY cotton July and December contracts managed to up 172 points and 78 points respectively.
Weak demand outlook did affect price gains in cotton; in parts. However, a major chunk of the rally came on the back of spectacular retail sales numbers, during the week, and hopes of continued Chinese demand for U.S. agricultural products.
Fund buying continued for the third week in a row; though it was limited. The weekly Commitment of Traders report, for the week ended 16th June, showed that managed money had reduced their net long position 55% wk/wk to 2,951 contracts. The reduction came from net new sellers. Meanwhile, open interest dipped by 34,157 contracts at 202,288 contracts.
On the last trading session of the week, ICE cotton futures rose on the back of positive export sales data and dry weather in Texas, the largest cotton-producing state.
Cotton contracts for December settled up 29 points at 59.81 cents per lb. It traded within a range of 59.36 and 60.19 cents a lb. July Cotton closed at 61.56 cents, up 39 points. July-December spread was inverted 175 points vs inverted 81 points last week.
During the week, ICE cotton upped the most on Tuesday and Wednesday, together, gathering 198 points.
The Dow had spiked 900 points early, based on a supposed vaccine breakthrough using steroids, and the news President Donald Trump would propose a $1 trillion infrastructure package for the country.
Wall Street surged after a Commerce Department report showed overall U.S. retail receipts rose 17.7% last month, the biggest advance on record, bolstering hopes of a faster-than-expected economic recovery.
Expectations of continued purchases from top consumer China helped drive buyers’ sentiments too.
However, cotton futures fell on Thursday as a rise in coronavirus cases in China soured the outlook for demand from the top buyer.
Market participants also took stock of weekly export sales reported by the United States Department of Agriculture, which showed net sales of 97,600 running bales (RB) for 2019/2020 were down 76% from the previous week and 31% from the prior 4-week average.
While exports of 348,300 RB were up 18% from the previous week and 32% from the prior 4-week average. Exports were primarily to China, at 123,500 RB, Vietnam at 89,900 RB, Turkey at 49,900 RB, Pakistan at 24,000 RB, and Bangladesh at 13,300 RB. Of the week’s old crop sales, 93% were to China. China is responsible for 30% of the total new crop forward bookings.
The losses were limited also on account of inclement weather condition for cotton crop. Texas and other major cotton-growing regions in the United States that have been undergoing a dry spell, raising concerns of crop damage.
On India’s front, cotton exports are gaining momentum as the prevailing low prices have made the fibre attractive in the global market.
According to Cotton Association of India (CAI), the export target of 47 lakh bales will be achieved and going by the current trend, shipments may touch 50 lakh bales this season. Cotton exports in 2018-19 stood at 42 lakh bales.
Meanwhile, India’s kharif acreage is racing ahead too and Cotton acreage, as on June 19th, is up 58%at 2.87 million hectares. Of this, 25% rise in acreage has been witnessed in North India, where sowing is nearly complete.
However, domestic cotton prices were affected due to steep discounts declared by CCI on its cotton stocks to match up the market rates. This weakened mills’ demand in major cotton markets of the country; bargaining for cheaper cotton in anticipation of further price reduction.
Cotton prices have declined nearly 16% so far this year, hurt by the coronavirus pandemic that stalled economic activity and consumption, while concerns of an escalation in the Sino-U.S. trade war also remained on the horizon.
"A fall through of the Phase 1 trade deal signed in January 2020 would put downward pressure on grains and cotton in particular," Fitch Solutions said in a note.
China’s foreign policy leader Yang Jiechi met with U.S. Secretary of State Mike Pompeo on Wednesday. The meeting in Hawaii led to reports that China will begin ramping up purchases to meet Phase One obligations.
Meanwhile a USDA report indicated that until May 28th 2020, China’s purchase of U.S agricultural products rose sharply. China’s imports of U.S. cotton rose by 30% at 1.48 MT YoY.
Experts advise to put on some downside protection via puts or put spreads. They deem the current environment as unpredictable to place outright bets on the market.
Analysts see a mixed trend on charts. For July futures, immediate support and resistance for Cotton #2 lies at 59.00 cents and 62.10 cents per lb, respectively.
(Commodities Control Bureau)
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