Mumbai (Commodities Control) – It was tough trading week for NY cotton. Amid trading sessions full of crests and troughs, ICE cotton futures settled 2.28% higher for the week ended 21st August. This is the second weekly consecutive gain for cotton after the fibre closed 0.79% higher last week.
However, ICE cotton futures fell on Friday, weighed down by expectations of excess supply in the market and a rebound in the dollar.
Cotton contracts for December fell 0.30 cent, or 0.5%, to 64.22 cents per lb , after touching a near two-week peak in the previous session and closed at 64.28 cents, down 24 points. March 21 Cotton closed at 65.2 cents, down 22 points and May 21 Cotton closed at 65.9 cents, down 18 points. Dec’20-Mar’21 spread stood at 98 points vs inverted 9 points in the previous week.
During 17th and 21st August, ICE cotton futures managed to garner 202 points in three trading sessions on the back of technical buying, robust chinese purchases of U.S. cotton along with dollar weakness. However improving crop conditions in the U.S. along with persistent demand worries and rebound in currency over the weekend ate into some of these gains. Cotton #2 gave up 59 points due to lower settlement on Tuesday and Friday collectively.
Cotton prices were heavily supported by fund buys. Managed money was 40,899 contracts net long with data from the latest Commitment of Traders report. That was up 1,061 contracts wk/wk, to the largest speculative trader net long since October 30 of 2018.
Experts are of the opinion that factors such as continued increase in purchases of U.S. cotton and a U.S.-China meeting would help push cotton prices higher.
The U.S. Department of Agriculture's (USDA) weekly export sales report showed exports of 421,500 running bales in the week to Aug. 13, out of which 192,000 running bales were shipped to China. Shipments to China were 45% of the total, and through the first two MY weeks, China has been the destination for 50% of 2020/21 cotton.
Meanwhile, China and the United States have agreed to hold trade talks "in the coming days" to evaluate the progress of their Phase 1 trade deal, confirmed the Chinese commerce ministry on Thursday.
However, the Crop Progress report showed 80% of cotton was setting bolls as of August 16. That was 2 ppts ahead of the average pace. NASS noted that 15% of the national crop was opening bolls; the average is 14%.
The United States Department of Agriculture's (USDA) weekly crop progress report on Monday showed 45% of the crop was in good/excellent condition, up from last week's 42%. In Texas, 19% of cotton had bolls opening as of Aug 16, that is one percentage point ahead of average, but below 32% from last year.
Crop condition in Texas, the largest cotton producing state in the U.S. also improved, with 27% of the crop in good/excellent condition, against last week's 22%.
U.S. cotton yield is projected at a record 938 pounds/acre, 14% higher than in 2019, the USDA said in its World Agriculture Supply and Demand Estimates (WASDE) report. The agency also raised its production estimate for the 2020 crop by 3% to 18.1 million bales.
"There is talk of a big crop coming, last week USDA raised the crop by 500,000 bales. The market was looking for 17.2 million... so that sort of blunted the momentum," said Keith Brown, principal at cotton brokers Keith Brown and Co in Georgia.
In its monthly World Agriculture Supply and Demand Estimates (WASDE) report on Aug. 12, the U.S. Department of Agriculture (USDA) raised its U.S. production estimate for the 2020/21 crop to 18.1 million bales from 17.5 forecast in July.
"The stronger dollar is weighing a bit on prices, but I believe that this is temporary and dollar weakness will continue as we approach the U.S. elections," Peter Egli, director of risk management at British merchant Plexus Cotton.
The market is dominated by index funds and speculative buying at the moment, with fundamentals taking a back seat, he added.
Next week, the market will see crop conditions’ data on Monday. However, traders will be eyeing the two tropical depressions on the cusps of entering the Gulf of Mexico. It will be the first time in 60 years, two named storms will be in the Gulf at the same time.
Cotton traders are also watching for a new U.S.-China review of the phase-one trade deal. The original meeting was canceled, we now know by President Trump. However, the treaty does require a review, but the white house has not announced a date.
Indian cotton-related updates - Cotton Corporation of India (CCI) has raised cotton prices by Rs 800-1,000 per Candy so far this week, as the company raises cotton rates for the third time this week. Amidst increasing prices in the global cotton benchmark, reduced crop arrivals and improving mill demand, CCI decided to hike cotton rates under its discount scheme.
Cotton prices were strong in North India and Lower Rajasthan, barring Gujarat where trade was affected due to heavy rains this week. Meanwhile cotton prices were steady-to-firm in major cotton mandis of Maharashtra and M.P.
Going ahead, experts see a more range-bound movement in cotton prices. Near term money flows and weather threats should keep the market cushioned, but bearish fundamentals will limit the gains in the absence of major crop setbacks.
Support and Resistance for Cotton #2 lies at 63.74 cents and 64.82 cents per lb, respectively.
(Commodities Control Bureau)
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