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Weekly : ICE Cotton Rally Supported by Positive Development in COVID-19 Vaccine; Experts See Continuation of Sideways Trend

23 Nov 2020 7:50 am
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Mumbai (Commodities Control) –NY Cotton rose 3.64% for the week ended 20th November, while the fibre got a big push on Friday when it rose to a more than three-week high. The commodity posted its biggest weekly gain in five, as Pfizer's move to get authorization for its COVID-19 vaccine lifted hopes for an economic recovery and rebound in demand.

Through the week, bullish drivers also included the on-going technical trend, the net-long specs position, The spot December fading away, bringing the March contract to the forefront suggests the cotton market is beginning to transition away from “supply futures”, such as October and December, to the “demand futures,” or March, May, and July.

Rising virus cases with fear of a second wave of infections and weak export sales data on Thursday were the major bearish factors this week.

Analysts fear ‘double-dip’ recession, after rising COVID cases and deaths that have caused Europe and the US to lock down again. This has dashed hopes for a continuation of the strong recovery, with mills now reporting slower or delayed orders. The Commitment of Traders report from CFTC showed a 1,529 contract reduction to managed money’s net long position. Cotton speculators were still 57,565 contracts net long on 17th November after the long liquidation. Open Interest for commercials dropped 11% on the week to a 7 week low 200,590. That reduced the commercial net short 1,014 contracts on the week to 140,428.

On 20th November, the cotton contract for Mar 21 settled at 72.96 cents, up 129 points. December 20 Cotton is at 70.88 cents, up 156 points. May 21 Cotton is at 73.79 cents, up 122 points and July 21 Cotton is at 74.4 cents, up 113 points. Dec’20-Mar’21 spread stood at 208 points.

For the week, December contracts gained 3.53% and March contracts gained 256 points. The most-active contract is up 312 points for the month, and 216 points for the year.

During the week, World equity markets gained and were just shy of a record, while the dollar index touched a more than one-week low after Pfizer Inc said its COVID-19 vaccine was 95% effective and it would apply for emergency U.S. authorization within days.

Pfizer's announcement followed Monday's positive data on a late-stage trial from Moderna Inc , whose experimental vaccine is about 95% effective in preventing COVID-19.

Pfizer Inc said it will apply to U.S. health regulators on Friday for emergency use authorization (EUA) of its COVID-19 vaccine, which is 95% effective, and expects the U.S. FDA to grant the EUA by mid-December. "Sooner than later we'll be inoculating some people and that's a good thing and promises a better economic activity, combined with the fact that we have a shorter crop due to damage in the southeast from recent hurricane activity," said Jack Scoville, vice president at Chicago-based Price Futures Group.

Cotton futures fell from a one-week peak this Thursday due to weaker export sales data and rising coronavirus infections.

The U.S. Department of Agriculture's weekly export sales report showed net sales of 131,400 running bales (RB) for 2020/21, down 45% from the previous week and 62% below the same week last year, as China canceled on net 24,196 RBs of sales. The report also showed that exports of 277,300 RB were down 5% from the last week.

Cotton fell to multi-year lows in April, after virus-induced restrictions weighed on economic activity and apparel demand, but was propped up later in the year by crop damage worries from Hurricanes Sally and Delta.

Total futures market volume fell by 4,008 to 19,305 lots.

The U.S. Department of Agriculture's weekly crop progress data on Monday showed 69% of cotton harvested as of the week ended Nov. 15, compared to 61% in the preceding week.

Next week, the cotton market will see crop harvest progress on Monday. The market will be closed on Thursday in observance of Thanksgiving Day, which will delay weekly exports and sales to Friday.

For Indian markets, it was a truncated week due to Diwali holidays and most of the spot markets were shut until 18th November. However for the remainder of the week, cotton prices at major markets were firm due to rebound in mill buying, stockists demand and CCI procurement.

Experts are watching CCI’s procurement which, with its high support price, is keeping values from dropping. However they are skeptical, Once daily arrivals increase substantially over the coming weeks and months. It might, they note, overwhelm the government’s ability to take up cotton which could put some pressure on prices.
Plexus Cotton expects the current sideways trend to continue, with increasing odds for a technical break to occur over the coming weeks.

Immediate support and resistance for Cotton #2 lies at 71.17 cents and 73.95 cents per lb, respectively.

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