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Weekly: ICE Cotton Ends Stronger on Output Concerns, Non-Stop Speculative Buying; Experts Hopeful of 70 C Now

11 Oct 2020 8:42 pm
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Mumbai (Commodities Control) – NY cotton performed well for itself, marking week’s end with 182 points gain for December futures and nearly 2.7% higher for March’ 21. The active contract on ICE went very close to 68.70 cents level for the week ended 9th October.
Even Indian markets managed a positive closing tracking firm global cues. October and November futures on MCX ended nearly 2% and 2.8% higher respectively. This week, Indian fibre in major spot markets gained strength as Cotton Corp. of India's procurement gained momentum. Mill buying is warming up with rise in daily arrivals.

During the week, Hurricane Delta provided the catalyst for the market to break out of its sideways pattern.December futures was stuck in a 79-point settlement range for 13 sessions before prices started to head north on Tuesday.

The week started favourably for the fibre, as ICE cotton futures climbed to over a seven-month high on Monday, on news that U.S. President Donald Trump could be discharged from the hospital and concerns of crop damage from Storm Delta.

Multi year highs in soybean and wheat provided for a positive sentiment to keep up cotton’s northward rally though midweek, as Cotton #2 zoomed to 7.5 months’ high on Wednesday.

However the rally fizzled on Thursday. ICE cotton futures fell from a more than seven-month peak on as lower U.S. export sales of the fiber offset support from crop damage fears due to Hurricane Delta. Thus, traders elected to square positions.

In its weekly export sales report, the U.S. Department of Agriculture reported net sales of 178,400 running bales (RB) for 2020/21, down 27% from the prior 4-week average.The report also showed that exports of 142,300 RB were down 38% from the prior 4-week average.The top buyers were Vietnam with 125,500 running bales and China with 26,700 RBs. The report also noted that Bangladesh rolled 14,000 RBs for 2021/22 delivery.

Meanwhile, the cotton market ended its Friday session fractionally higher as USDA issued a benign supply and demand report. Infact ICE cotton futures pared early gains after the release of the United States Department of Agriculture's (USDA) monthly supply and demand report.

Cotton contracts for December were up 0.47 cent, or 0.7%, at 67.96 cents per lb as of 12:17 p.m. EDT, having touched their highest since Feb. 24 at 68.68 cents and closed at 67.64 cents, up 15 points. December cotton closed 2.8% higher for the week and 5.36% stronger for the month.

March 21 Cotton closed at 68.42 cents, up 16 points. Dec’20-Mar’21 spread stood at 78 points vs 81 points last week.

As per the WASDE report, U.S. cotton and world production for the 2020/21 crop year was lowered compared to last month. World ending stocks in 2020/21 are now projected 2.7 million bales lower than in September, at 101.1 million bales, equivalent to 89 percent of consumption.

Production is lowered more than 900,000 bales with declines in Mali, Pakistan, and Greece. Consumption is 1.5 million bales higher, largely reflecting revisions for China and India. World trade is projected about 500,000 bales higher this month, reflecting a 500,000-bale increase in China’s projected imports, and on the export side, higher exports by Brazil and Uzbekistan offsetting a decline for Mali.

Adding to the bullish factors is the fact that, new cotton crops in India and China will be procured and stocks will be held by their respective Governments which is unlikely to result in supply pressure despite robust production.

Apart from the fundamentals, technical charts are far from losing the steam yet. CFTC’s Weekly data release showed cotton speculative traders were 53,080 contracts net long on October 6. That was up 1,952 contracts from last week’s net long. This is the result of simultaneous addition of longs, up 1234 contracts at 58,653, and reduction in the short side by 718 contracts to 5573 contracts. The open interest was reported at 270,094, up 7,043.

However, we cannot ignore that the pandemic is not all wiped out (or even in control for that matter). India's coronavirus case tally topped 7 million after it reported 74,383 new infections in the last 24 hours, data from the health ministry showed on Sunday.

The consumption of yarn and textiles may have resumed, but any case of rise in the virus infections can adversely affect global financial and commodity markets upswing, ultimately disturbing the demand and consumption.

Next Week, the Market will assess what damage Hurricane Delta might have done to the crop. With Monday being Columbus Day, the weekly reports will be delayed a day. So, on Tuesday afternoon, USDA will issue another crop harvest report.

Last week’s numbers had the crop 83% bolls open and 17% harvested. Then on Friday, another round of export sales will be issued. It is hoped that, with China beyond its Golden Week celebrations, it will be a more vibrant participant.

Summing up, experts are of the opinion that cotton will likely remain well supported in the mid-60s and might challenge the 70 cents level, if trade shorts are forced to buy their way out of trouble.

Support and Resistance for Cotton #2 lies at 66.81 cents and 69.09 cents per lb, respectively.

(Commodities Control Bureau)

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