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Weekly: ICE Cotton Inches Up on Short Covering & Estimates of Lower Global Cotton Output-Ending Stocks; Sideways Price Move to Continue

14 Sep 2020 7:59 am
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Mumbai (Commodities Control) – NY cotton ended less than a percent higher for the week ended 11th September. During the truncated week, the most-active ICE cotton futures touched the lowest point beneath 63.40 cents and highest level, during the period, close to 65.60 cents per lb.

December futures continue to exhibit sideways movement, with a somewhat upward bias on the back of a weaker dollar and the estimates of lower global cotton production and ending stocks for 2020-21 crop year.

Meanwhile on technical charts, Cotton speculative traders reduced their CFTC net long to 46,464 contracts vs 53,231 contracts, via long liquidation. The open interest for the week ended 8th September rose 7370 contracts at 257,566 contracts. For the first time in weeks, longs lowered by 5,224 contracts and shorts rose by 1543 contracts, simultaneously.

Experts observe that Speculators have been the main buyer over the last five months. These Speculators, they add, are a mix of trend, momentum and fundamental traders, with no reason to reverse their position. However,The trade has been on the other side of all this buying, with its net short position growing since April. Most members of the trade still have a bearish view on the market.

Getting back to the week’s performance, ICE cotton futures extended gains on Friday after the United States Department of Agriculture (USDA) lowered their global and U.S. production-ending stocks estimates of the natural fiber for the 2020/21 crop year.

Cotton contracts for December rose 0.74 cent, or 1.1%, at 65.55 cents per lb, and closed at 64.81 cents per lb, unchanged. October Cotton closed at 64.06 cents, up 10 points. March 21 Cotton closed at 65.78 cents, down 4 points and May 21 Cotton closed at 66.56 cents, down 7 points. Dec’20-Mar’21 spread stands at 23 points vs 85 points for the week ended 28th August.

In its September projections for Cotton crop 2020-21, beginning stocks are lowered in India, more than offsetting increases for China and Brazil. Production is higher in China, India, and Australia, but lower in the United States, Pakistan, and Turkey. Consumption is lower in the United States, Mexico, and Brazil.

World trade is slightly higher, with increases for Australia, Brazil, and India offsetting lower U.S. exports. Imports are forecast higher for Pakistan and Turkey, but lower for Vietnam. World ending stocks of cotton in 2020/21 are projected at 103.8 million bales, 1.1 million lower than in August, and 4.4 million higher than in 2019/20.

U.S. cotton production for the 2020/21 crop is lowered by 1.0 million bales to 17.1 million, with a lower projection for every region, according to the World Agriculture Supply and Demand Estimates (WASDE) report.

New crop cotton yield was cut to 910 lbs/acre. USDA also lowered new crop stocks to 7.2m bales on the crop reduction. USDA did maintain the average farm price of new crop cotton of 59 cents/lb. The first half of Sept cotton ginnings were down 20% yr/yr at 287,750 RBs.

USDA’s Export Sales report had cotton bookings at 126,671 RBs for the week ending 3rd September. New crop exports total 1.482m RBs through the first 5 weeks of the MY, which is an all-time record. Of the accumulated shipments, China has been the destination for 51%.

The holiday-shortened week for Cotton #2 began with the fibre touching its lowest level in nearly three weeks on Tuesday on a stronger dollar and concerns over trade relations between the natural fiber's top exporter, the United States, and the top consumer, China.

NASS reported 37% of the 2020/21 cotton crop was opening bolls as of 6th September. The 5-yr average pace is 34%. In TX, 39% of cotton was opening bolls, up from 33% LW and 11 ppts ahead of their average.

However, mid-week onwards, weak dollar and mill-fixations ahead of the WASDE Report on the 11th September moved in favour of cotton prices.

Cotton experts note that the market lacks clear direction at the moment and might continue to trade sideways for a while longer. Given the uncertainty though, participants are advised to use options only for any directional bets.

Meanwhile in India as per latest GoI updates on kharif acreage, about 129.30 lakh ha area coverage under cotton has been reported compared to last year (126.61 lakh ha). Thus 2.69 lakh ha more area has been covered compared to last year.

Major cotton producing states in India reported range-bound cotton prices amid stable arrivals and weak mill demand. The current cotton season is at its fag-end now. There are many opposing factors in the market that are impacting buying decisions. Current crop arrivals are reported at approximately 6000-7000 bales per day on all India basis. New crop arrivals have also started, but heavy monsoons are impacting arrivals. Apart from Northern India, MP and Gujarat have reported some quantities of new cotton arrival.

CCI’s cotton sales were very aggressive in August. CCI and Maharashtra Federation sold nearly 61 lakh bales till 31st of August out of 133 lakh bales sourced in total. Now CCI is left with around 65 lakh bales and Mahafed with around 11 lakh bales. Meanwhile CCI is planning to buy cotton in the new season, at an increased MSP. CCI and traders have huge cotton stocks which will certainly create price pressure in the market.

Support and Resistance for cotton #2 lies at 64.01 cents and 66.01 cents per lb, respectively.

(Commodities Control Bureau)

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