MUMBAI (Commodities control) - Cotton prices on the Intercontinental Exchange (ICE) traded in a narrow range for the week, ended 26th June, with extremely low volumes.
Low open interest indicates market participants are not interested in taking fresh positions as they are not willing to take fresh short position at current price and hope of further economic stimulus package at the same time. Market is wary off long positions as well, amid economic uncertainty and ample availability of raw cotton across the globe.
Most active December contract traded in a narrow range of 58.80 to 60.09 cents during the week .It closed down 31 points at 59.5 cents/lb. March 21 contract closed with loss of 40 points at 60.16 cents/lb, while July contract,due for expiry, traded in a range of 60.10 to 63.14 cents.It closed down by 93 points for the week at 60.10 cents/lb.
Open interest across all contracts was 158,929 which is the lowest level since July 2014. Dec/ March spread was 66 points.
ICE cotton moved in a tight range, during 22-26 June, due to economic uncertainty. The gradual opening of global economy raised hopes for increase in the demand. Market is also expecting fresh economic stimulus by global central banks which may support the revival of cotton and textiles demand. However resurgence of coronavirus cases cast doubt over the re-opening process, raising concerns over demand prospects in the near term.
US export sales were upbeat and supportive for the cotton market. The report showed 102,700 bales of net new sales for 2019/20, out of which 94,500 bales were received by China.
Of the 67,900 bales sold for delivery in 2020/21 (i.e. after August 1), 36,500 bales were to China and 33,400 bales were for Vietnam. Combined shipments of Upland and Pima totaled 325,700 bales, continuing to beat the average needed for the USDA’s current 15 million bales export forecast for 2019/20.
U.S. cotton planting is nearing completion and 27% of the crop is reported to be squaring. However weather conditions haven't been conducive during the week.
Texas’s deterioration was the most notable, with 15% of the crop shifting from “fair”, “good”, or “excellent” rating down to “poor” and “very poor”. As per the latest report, only 40% of the US crop falls in the “good” or “excellent” rating versus 50% at this time last year.
According to the Commodity Futures Trading Commission report, managed money increased their long position marginally by 991 contracts to 3942 contracts.
Next week market will be looking for Acreage Report which will be published on 30th June. USDA will make first update to its estimate of cotton’s planted acres for the 2020/21 season.
Most analysts are expecting the Acreage Report to show a decline from the 13.7 million planted acres that were estimated on March’s Prospective Plantings report, as that report used data before the price collapses precipitated by the pandemic.
Besides the acreage report, crop progress, and weather condition will guide traders' estimation.
The weekly export sales report will retain more focus than usual as traders would like to get an idea about demand; whether it can diversify from just China and Vietnam.
Recent recovery in the market is attributed to short covering, before the expiry of July contract, and firm financial markets due to economic packages given by central banks.
Market anticipates global central banks to announce more packages to boost the economy. This hope will likely keep financial and commodity markets, including cotton, firm for extended time. However, this may not last for too long due to ample supplies of raw cotton globally. Meanwhile there is no remedy for coronavirus yet, which will restrict recovery in demand.
Meanwhile cotton scenario in India is anything but bullish.
According to GoI, kharif crops had been sown in around 31.56 million hectares till 26th June which was 104.25% more than the same period last year. Acreage of oilseeds, cotton and coarse grains are currently ahead of last year’s sowing figures, so far.
Cotton was sown in around 7.16 million hectares till Friday, compared to just 2.70 million hectares last year. So far, 68% of cotton cultivation has been completed in the producing belts of the country.
Domestic cotton prices slid throughout the week on estimates of higher output, discounted prices of CCI cotton and lukewarm demand. There was barely any support from overseas market.
Technically December contract is consolidating near the key resistance level of 61 cents. A fresh break out above 61cents will lead to a technical reversal and more upside.
Support for December contract is at 58.5 cents/lb and resistance is at 61cents/lb.
(By Commoditiescontrol Bureau)
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