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Weekly: ICE Cotton Races Ahead amid U.S. Crop Damage Concerns, Strong Exports Data; Mixed Price Trend with Upward Bias

3 Aug 2020 9:38 am
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Mumbai (Commodities Control) - After prior weeks of losses, Cotton #2 surged 256 points for the week ended 31st July. The most active December futures shot up 4.25% during 27th-31st July. Last week, the fibre ended 184 points lower.

ICE December Contract rallied 314 points in three trading sessions on the back of crop damage concerns due to Hurricane Hanna, weak dollar and upbeat export sales data.

The most-active contract stuttered a bit on Tuesday, while NY cotton fell from one-week peak on Friday due to favorable weather conditions in major cotton growing regions in the United States reduced fears of crop damage.

On Friday, cotton contracts for December settled down 0.52 cent at 62.66 cents per lb, having earlier hit their highest since July 22 at 63.31. March 21 Cotton closed at 63.25 cents, down 56 points. Dec’20-Mar’21 spread stood at 59 points vs 86 points in the prior week.

NASS reported 42% of cotton was setting bolls as of July 26, which is 2% behind the 5-yr average. The 2020 crop is wounded from all the weather adversities that have already befallen it. Some of those troubles ought to show in the next crop report on August 12.

On Thursday, encouraging export sales data, with net sales turning positive for the first time in three weeks, also provided support to prices.

The U.S. Department of Agriculture's (USDA) weekly export sales report showed net sales of 118,700 running bales (RB), up and exports of 320,800 RB, up 18% from the previous week. That was more than 10 times the same week last year. New crop sales were 9,500 RBs, which was mainly to Vietnam and Pakistan. Cotton exports from the same week were 320,784 RBs. That was up 18% wk/wk and 10% above the same week last year.

Friday marked the end of the 2019-20 season. Even under the shadows of tariffs and geopolitical troubles with China, it eventually was the No. 2 buyer of U.S. cotton, with Vietnam being top.

However the week ended on Friday with some bearish weather related news.

"The weather has turned favorable for the cotton growing regions in the U.S. and the hurricane (Hanna) got some good rains after the heat-wave that raised crop damage concerns," said Stephen Platt at Archer Financial Services.

Severe hot and dry conditions in Texas, the biggest cotton producing state in the U.S., had stoked fears of crop loss leading the contract to gain 1.9% this month - its second straight monthly gain.

Cotton prices have declined 11% so far this year on the back of the demand destruction caused by the pandemic, forcing global central banks to inject stimulus to help ailing economies.

In CFTC’s weekly CoT report, cotton speculative traders reduced their bulging net longs by 4738 contracts to 25,635 contracts for the week ended 28th July. Managed money gave up 4896 contracts from their long position at 42,105 contracts. The open interest for the week ended 28th July stood at 210,600 contracts, down 3287 contracts.

"We'll see cotton moving up and down with the tone of the headlines that come out related to the pandemic but ultimately it will break the range once the effects of all these stimulus come to vision," Platt said.

India-Related Cotton Updates
The Cotton Association of India (CAI) has increased its cotton crop estimate for the 2019-20 season to 335.50 lakh bales of 170 kg each, in its June estimate. This is 5.5 lakh bales more compared to CAI's previous estimate of 330 lakh bales made last month.

The Association has estimated total cotton supply till end of the current cotton season i.e. up to September 30, 2020 at 382.50 lakh bales. For crop year 2018-19, CAI finalised total crop at 312 lakh bales.

During the week, domestic cotton prices in major cotton mandis of India were steady-to-strong due to negligible farm arrivals and improved mill buying. Cotton prices in North Indian markets gained Rs 50 per maund this week, while Lower Rajasthan cotton prices were up Rs 500-600 per candy.

Meanwhile cotton acreage, in a major producing state-Gujarat, dropped 7% as compared with last year, amid lesser rains. According to the State Agricultural Department, cotton acreage reached 22,16,411 Ha as on 27th July, while the figure was 23,76,074 Ha last year for the corresponding period. It is to be noted that the average cotton acreage in Gujarat takes place at 26,73,892 Ha. However so far, only 82.89% of the area could be covered.

During the week, Cotton Corporation of India (CCI) said the prices of the fibre crop have bottomed out and expects the demand from the spinning mills to pick up gradually on easing of lockdown. CCI has sold about 9 lakh bales over the past one month.

At present, CCI is holding a stock of 105 lakh bales, of which 98 lakh bales were procured from the current season and 7 lakh bales from 2018-19.

Going forward, analysts see a move above the July 22 high of 63.46 cents and the 200 DMA would set up a move towards the July 7 high at 64.90 cents.

Jack Scoville of Prices Futures Group observes, “Cotton closed higher as bad growing conditions continued in West Texas. West Texas is now getting some rains from the tropical system that hit the state, but this will only serve to stabilize the situation. Export demand for US Cotton has been poor for the last few weeks, but improved this week. The world is starting to slowly recover from the Coronavirus scare and some stores are starting to open again after being closed for weeks. However, economic improvement in the US was thrown into doubt as Coronavirus cases surged higher in states that had reopened...”

Having said so, Scoville sees a mixed trend in NY cotton, with support and resistance for ICE December futures at 61.80-60.60 cents and 63.40-64.30 cents per lb, respectively.

(Commodities Control Bureau)

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