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Weekly: ICE Cotton Prices Extend Upward Rally Due to U.S Weather Concerns, Robust Fund buying; Prices Headed Higher

13 Jul 2020 7:31 am
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Mumbai (Commodities Control) – Cotton # 2 rallied over 2% for the week ended 10th July. Most-active December contract upped 136 points during 6-10 July; driven higher by weather concerns in Texas’ cotton producing belts. Similar conditions helped ICE cotton finish the previous week 5.5% higher.

WASDE’s July crop projections helped NY cotton settle higher for the week ended 10th July.

ICE cotton futures were well-supported on technical charts as well. The CoT report showed net new buying alongside short covering from cotton speculative traders. Managed money’s net position in cotton was 21,520 contracts net long on July 7, up 143% from prior week.

ICE cotton futures had a positive settlement on Friday after a federal supply and demand agency reduced its projection for global production and ending stocks for the 2020/21 crop year.

Cotton contracts for December rose 42 points to settle at 64.31 cents per lb. March 21 Cotton closed at 64.83 cents, up 34 points and May 21 Cotton closed at 65.34 cents, up 33 points. Dec’20-Mar’21 spread stood at 52 points vs 72 points in the prior week.

The United States Department of Agriculture (USDA) in its latest World Agriculture Supply and Demand Estimates (WASDE) report cut its global production estimate to 116.25 million bales from 118.74 projected in June.

Global projected ending stocks in 2020/21 are lower this month as well, down 1.9 million bales, largely due to a 2.5-million-bale reduction in projected world production.

While the United States accounted for most of the global decline in production, projections were also reduced for Turkey, Tanzania, and Mexico, more than offsetting a 200,000-bale increase for Pakistan.

Consumption in 2020/21 is projected to be 115,000 bales lower this month. At 114.3 million bales, consumption is expected to rise 11.7 percent from the previous year’s recession-reduced level.

Amidst all, Cotton trade body Cotton Association of India (CAI) has raised serious objection over the US Department of Agriculture’s (USDA) assessment of India’s cotton stock positions alleging a misleading portrayal of India’s cotton market in the international market.

In its India-specific Cotton and Product update for June 2020, the USDA has estimated a cotton carryover stock of 19.8 million US bales (each of 480-lb) as of July 2020. This works out to an equivalent to about 244 lakh bales (of 170 kgs each). The CAI termed it ‘astronomically high’ figure from the reality.

While in the midst of the latest export numbers and continued forecast of a hot and dry Texas during Thursday’s session, new crop posted a very strong technical spike in response to a Chinese shipment, but halted a little short of 65.00-cent level. The stopping point occurred right about the 62% retracement level, as pulled from the January high to the April low.

The weekly export sales data from the USDA showed net sales for 2019/20 were down 35% from the previous week, while exports were up 19% for the period ending July 2. Old crop cotton bookings from the Export Sales report were 43,772 RBs in the week ending July 2.

Total commitments through July 2 (17.03m RBs) are still 11% above last year and the highest since the 2005/06 MY. Old crop sales to China accounted for 50.2% of the total.

The U.S. Department of Agriculture's weekly crop progress report on Monday showed 43% planted U.S. cotton was in good/excellent condition, little changed from last week.

Looking at the Indian side of cotton story- The area planted with cotton was at 10.5 million hectares, as on 10th July, up from 7.8 million hectares at the same time last year. It is to be noted that 87% of cotton cultivation has been completed thus far in India. An average of 12 million hectares goes in cotton sowing. Due to shortage of workers, Punjab and Haryana farmers opted for cotton over paddy, which is a labour intensive crop.

Domestic cotton prices in major cotton producing belts in India witnessed steady-to-positive price trend during the week, taking cues from firm overseas cotton prices. Although mill demand continues to be weak.

Going ahead, experts see cotton prices being supported by U.S weather concerns.

"We are looking for stable prices for the very short-term. As long as the weather stays hot and dry in west Texas, we have a little bit more impetus to go higher," said Jack Scoville, vice president at Chicago-based Price Futures Group.

"It has turned very hot and dry in the west Texas area and that looks to persist for the next few days or so," said Keith Brown, principal at cotton brokers Keith Brown and Co in Georgia, adding that if conditions remain dry, it could push cotton prices to about 67 cents per lb.

However, rising virus cases have weighed on demand for apparels, prompting the natural fiber to plunge about 10% so far this year.

"With respect to demand, the cotton market remains on life support, with little relief in sight," Louis Rose, director of research and analytics at Tennessee-based Rose Commodity Group, said in a note.

From a technical point of view, however, the market seems to be headed higher and new speculators’ money is flowing in.

According to Michael Seery of Seery Futures, “The next major level of resistance is between 65/66 and if that is broken …we could trade up to the 70 level as hot and dry conditions persist in West Texas as that could possibly hurt the yield come harvest time.”

(Commodities Control Bureau)

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