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Weekly: ICE Cotton Edges Up on Speculative Buying, Crop Damage Concerns Earlier This Week; Experts See Sideways-to-Higher Price Move

30 Aug 2020 4:31 pm
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Mumbai (Commodities Control) –In a third weekly consecutive gain, NY cotton managed to settle a tad bit higher by 1.24%. The most active December futures on ICE went as high as 66.45 cents per lb, before paring all the gains for the week ended 28th August. ICE cotton futures settled 2.28% last week.

Cotton #2 fell on Friday as concerns about damage to the crop due to Hurricane Laura abated after the storm missed the major growing areas.

Cotton contracts for December fell 0.32 cent, or 0.5%, at 65.05 cents per lb and ended at 65.08 cents, down 29 points. October Cotton closed at 64.37 cents, down 39 points. March 21 Cotton closed at 65.93 cents, down 34 points and May 21 Cotton closed at 66.56 cents, down 40 points. Dec’20-Mar’21 spread stood at 85 points vs 98 points in the previous week.

Traders are still assessing hurricane damage, but it does not appear to have been as bad as the worst case assumptions.

Hurricane Laura "was initially expected to hit some of the cotton-growing regions hard, but it ended up missing the areas where it (cotton) is heavily grown so it was not such a bullish indicator," said Bailey Thomen, cotton risk management associate with StoneX Group.

The week began, for cotton #2, at six-months’ high on crop damage concerns. On Monday, cotton contracts for December rose 1.64 cent, or 2.5%, to 65.92 cents per lb. Prices earlier touched their highest since Feb. 26 at 66.02 cents and closed at 65.82 cents, up 154 points. However for the next 4 trading sessions, the most active contract pared 74 points due to technical sell-off and easing concerns of crop damage by Hurricane Laura.

Laura made landfall early Thursday as a Category 4 hurricane, packing winds of 150 mph (240 kph), in the small town of Cameron, Louisiana, but missed many fields of unharvested cotton.

However, prices of the natural fiber managed to post their third straight weekly gain, propped up by earlier concerns regarding potential crop damage from storms Marco and Laura.

"Two tropical systems caused the market to trade in typical 'buy the rumor, sell the fact' fashion this week," Peter Egli, director of risk management at British merchant Plexus Cotton said in a note on Thursday.

"And now that the storms are gone without inflicting much harm, we might see prices pull back some more from here."

Cotton prices have fallen over 7% so far this year as the coronavirus pandemic stalled economies and pummeled apparel demand.

The U.S. Department of Agriculture's (USDA) weekly export sales report showed exports of 277,500 running bales in the week to Aug. 20, out of which 153,500 running bales were shipped to China. MYTD cotton exports are 977,658 RBs, which is a record for the first 3 weeks. Exports and sales were a mixed bag, with increased sales, and decreased shipments. However, China seems to be a consistent participant.

From the week’s CoT report, managed money was a net buyer for cotton on the week ending 25th August. The net longs increased 7,824 contracts leaving the group 48,723 contracts net long. This is the result of simultaneous addition to long position and reduced shorts. The open interest rose 6,073 contracts to 239,670.

In the first week of the new month, the market will see new data on the 2020 crop’s condition as well as fresh exports and sales before observing the Labor Day Holiday Monday week.

The U.S. dollar saw further declines Friday as the index is still smarting for the Federal Reserve action of “reinventing” its inflation target.

The Fed has abandoned its fixed 2% target in lieu of a “floating” or “averaging” inflation rate. The bottom line is continued lower interest rates, and further weakness in the U.S. dollar.

Meanwhile on the Indian-side of cotton updates earlier this week, the Cotton sales by Cotton Corporation of India (CCI) touched 50 lakh bales due to heavy discounts and aggressive schemes offered by the Government agency.

Sources revealed that not just the textile mills, but many MNCs are queuing up for purchasing CCI’s cotton, as well. CCI’s discount scheme attracted MNCs like Louis Dreyfus, Olam, Cargill and Glencore. There was robust demand from North Indian textile mills too.

However the agency, abruptly, suspended its auction due to complaints by textile mills and thread manufacturers who were upset with Cotton Corp. for steeply raising its base rates last week.

Having said so, experts note that by moving above the 65 cents resistance mark the market has opened a new window to the upside which might lead to additional buying. It is, therefore, believed that the market will continue to defy bearish fundamentals and is going to trade sideways to higher in the near future.

Meanwhile, support and resistance for cotton #2 lies at 64.08 cents and 66.00 cents per lb respectively.


       
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