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Weekly: NY Cotton Ends in Green Despite Long Liquidation, Demand Concerns; Experts See 68-72 C Range Ahead

8 Nov 2020 2:58 pm
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Mumbai (Commodities Control) –NY cotton for December futures slipped a tad bit lower to end the week 30 points in red, while March’21 managed to close 37 points higher for the week-ended 6th November.

ICE Cotton futures posted triple digit losses on Friday amid rising global coronavirus cases and uncertainties around the U.S. election that stoked concerns about the demand of the natural fiber.

It was a week of see-sawing trade for cotton #2, ridden with U.S. election uncertainties, pandemic-led demand worries, weak dollar, technical selling pressure and then smaller crop concerns.

On Friday, the cotton contract for Dec 20 Cotton closed at 68.62 cents, down 145 points.
Meanwhile Mar 21 Cotton closed at 70.15 cents, down 106 points. Dec’20-Mar’21 futures spread stood at 153 points vs 86 points last week.

NY Cotton was dragged to 3 week lows at the beginning of the week. However, the market clinched triple digit gains on Tuesday due to the weak dollar and increased appetite for riskier assets.

According to the market analysts, the dollar slipped due to election worries that Biden would be elected and his outlook would be a lot more stimulus and a lot more inflation.

Although cotton steadied on Thursday as concerns over deteriorating crop quality and bets for a smaller U.S. crop in the next week's federal supply demand data countered pressure from positions rollover from the front-month contract.

Weekly export sales were essentially benign as sales were lower than the prior week, but shipments higher. The USDA's weekly export sales report showed net sales of 115,600 running bales (RB) for 2020/21, down 60% from last week, but showed decreases of 38,300 RB for China and 44,100 RB for Bangladesh. Exports of 270,000 RB were up 18%, the report showed.

However market experts note that concerns over demand with the re-emergence of the virus in Europe could affect Christmas sales.

Several major retail companies in the United States secured and boarded up their stores ahead of the election on fears of disturbances, looting and violence, which did not materialize.

The United States marked a record rise in daily coronavirus cases for a second day in a row, while several European countries reintroduced lockdown measures and other restrictions as new infections surged.

By the weekend market participants closely monitored the U.S. election as Democratic presidential nominee Joe Biden edged closer to a victory over Republican President Donald Trump.

Trade noted that there are concerns regarding the future of the U.S.-China trade agreement as "if Biden is elected and does away with the tariffs, and obviously that takes away the trade agreement, which is very negative for cotton.

Earlier this year, China had agreed to raise its purchases of U.S. agricultural goods over two years as part of a Phase 1 trade deal with the United States.

CFTC’s weekly Commitment of Traders report showed cotton speculators reduced their net long by 6,030 contracts to 64,171 on 3rd November 2020. That came via long liquidation. Commercials also covered shorts on the week, reducing the net short 7,021 contracts to 145,852.

Next week, the market will see harvest progress numbers on Monday, and USDA’s update on supply-demand numbers on Tuesday. Weekly export sales will be delayed to Friday as the U.S. government will be closed on Wednesday in observance of Veterans Day.

Monday's weekly crop progress data showed that only 37% of the crop was in good/excellent condition, for the week ended Nov. 1.

Meanwhile the Indian cotton markets reflected the volatility of global benchmark. It was a mixed week for spot cotton at major Indian mandis where factors like weak arrivals, dull demand from private millers and commencement of CCI’s procurement at MSP tossed the price of the fibre around.

Arrivals of new crops are expected to rise with conducive weather conditions at all the major cotton markets.

Meanwhile India's cotton exports could jump 40% in 2020/21 from a year ago to 7 million bales, the highest in seven years, as depreciation of the rupee and a rally in global prices allow exporters to clinch export contracts, according to the Cotton Association of India.

Higher exports by the world's biggest cotton producer in 2020/21 season, started on Oct. 1, could weigh on global prices and limit shipments from rivals such as the United States and Brazil to key Asian buyers such as China, Bangladesh and Vietnam.

Going ahead, cotton experts do not see any big moves in the near term. According to Plexus Cotton, ‘The market is going to remain range-bound in a 68-72 cents window.’

Immediate support and resistance for Cotton #2 March’21 futures lie at 69.19 and 71.91 cents per lb, respectively.

(Commodities Control Bureau)

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