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Weekly: ICE Cotton Manages to End Positive on Technical Buys, Retreating Dollar & Weather Concerns; Experts See ‘Boxed Up’ Market

27 Sep 2020 8:41 pm
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Mumbai (Commodities Control) – Amid a choppy trading week, full of frail financial markets and strong dollar index, Cotton #2 managed to end in green for the second straight week.ICE cotton futures rose on Friday, as wetter weather in major crop-producing areas in the United States delayed the ongoing harvest. For December, the week ended up with 29 points.

Cotton contracts for December were up 0.38 cent, or 0.6%, to 65.84 cents per lb and the most-active futures closed at 65.95 cents, up 49 points on Friday. March 21 Cotton closed at 66.66, up 41 points. Dec’20-Mar’21 spread stood at 71 points.

On the technical front, the weekly CoT update had Cotton speculative traders 1,483 contracts more net long, at 51,311 as of 22nd September. New buying was noted as managed long positions grew 2416 contracts W/W to 57397 contracts having said so, shorts have risen too by 933 contracts at 6086 contracts. The open interest for the week ended 22nd September rose by 1407 contracts.

Fundamentally, the week started on a fragile note, wherein ICE futures registered its fifth session of fall on Monday.
December Cotton closed at 65.24 cents, down 42 points, while March 21 Cotton closed at 66.24 cents, down 34 points. The U.S. Department of Agriculture's (USDA) weekly crop progress report on Monday showed 45% of the crop was in good/excellent condition, unchanged from last week and up from last year's 39%.The U.S. dollar shot higher as the surrounding volatility caused traders to take a “flight-to-safety” move.
On Thursday, The U.S. Department of Agriculture's weekly export sales report showed net sales of 92,700 running bales were down 82% and exports of 281,900 RB were up 50% from the previous week. Exports were primarily to China at 117,700 RB.

However over the second-half of the week, the cotton market managed to rise as the dollar retreated and unfavorable weather in major crop-growing regions in the United States supported prices.

Although, the financial markets are expected to become increasingly nervous ahead of the Nov. 3 U.S. elections and there is a potential for a risk-off move and deeper correction amid lack of a new stimulus measure.

However, revived hopes for a stimulus bill out of Washington boosted equities and spending ideas.

Experts believe that the cotton market ended Friday slightly higher as traders continue to pin their price hopes on a Chinese deal. Overnight, there was news of a very positive phone meeting between U.S. and Chinese negotiators. The results of that call indicated the two sides were very close to a phase one agreement.

Indian cotton exports are likely to rise significantly in the 2020-21 season (October-September). Trade sources reveal that from about 50 lakh bales (each of 170 kg) in 2019-20, exports may rise by 30% to about 60-65 lakh bales.The optimism stems from prospects for a higher demand.

The International Cotton Advisory Committee has estimated global cotton consumption to rise for 2020-21 to about 24.31 million tonnes, from 22.67 million tonnes estimated for 2019-20.

The US ban on purchase of products made out of cotton from the Xinjiang region of China serves as an opportunity for Indian cotton. At cheaper rates, the prospects for India cotton are bright for next year. Indian cotton prices quote at Rs 38,900 per candy (each of 356 kg) now, which works out at 66 cents per lb — among the lowest in comparison to 83.4 cents in Australia, 75.40 in US and 70.4 cents in Brazil.

Meanwhile according to latest kharif acreage updates by GoI,
about 130.37 lakh ha area coverage under cotton has been reported compared to last year (127.67 lakh ha). Higher area is reported from the States of Telangana (5.70 lakh ha), Karnataka (1.06 lakh ha), Punjab (0.99 lakh ha), Rajasthan (0.53 lakh ha), Haryana (0.36 lakh ha), Madhya Pradesh (0.35 lakh ha) and Odisha (0.02 lakh ha).

This week, cotton rates in major producing states in India were range-bound amid weak mills’ demand and dull arrivals. Cotton rates in North India, Lower Rajasthan and Gujarat were generally strong-to-steady, while the fibre was muted throughout the week in MadhyaPradesh, and South Indian markets.

As for the ICE cotton,
"the market seems to be happy at around 65.00 and it will take some new momentum to move it through strong overhead resistance or scale-down support," British merchant Plexus Cotton said in a note on Thursday.

Support and resistance for cotton #2 lies at 65.34 cents and 66.37 cents per lb, respectively.

(Commodities Control Bureau)

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