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Weekly: ICE Cotton Rises Over 4% on Spec Buying, Upbeat Market Mood; Eyes on 80 Cents

21 Dec 2020 8:35 am
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Mumbai (Commodities Control) - NY Cotton futures continued to rally for the second consecutive week, as the March contract gathered 308 points for the week ended 18th December. Cotton #2 finished 251 points higher for last week.

On Friday though, the cotton market moved in a narrow range and with low volumes. ICE cotton futures edged lower due to a stronger dollar, although a recent bullish federal export sales report and hopes for higher demand kept the natural fiber on track for its second straight weekly rise.

On Friday, Cotton futures settled 3 to 10 points lower for the front months on Friday. March cotton on ICE futures closed at 77.16 cents, down 3 points. May 21 Cotton closed at 77.83 cents, down 6 points. July ‘21 settled at 78.38 cents, down 10 points and December cotton ended at 73.77 cents, up 28 points. Mar’21-May’21 spread stands at 67 points vs 81 points last week

ICE cotton futures march its way northward right from Day 1 of the week, as the fibre rose to 1-1/2-year high on Monday. The rollout of a COVID-19 vaccine boosted the demand outlook for the natural fiber, with the weaker dollar also contributing to the upbeat mood.

Infact last week’s bullish supply and demand report from WASDE continued to support the cotton market even this week.

On Thursday, Cotton futures went past one and a half year high, propelled by a strong weekly exports sales report and hopes for more U.S. economic stimulus and its likely fillip to demand for the natural fiber.

The U.S. Department of Agriculture's weekly export sales report showed net sales of 402,900 running bales for 2020/2021, up 4% from the previous week and 44% from the prior four-week average.

Further helping cotton, the dollar index fell to its lowest in over 2-1/2 years against its rivals, making the natural fiber less expensive for holders of other currencies.

It is in fact interesting to note that the U.S. dollar was higher on Friday, reflecting its oversold condition. Currency traders have been outright selling the U.S. Dollar Index, as well as bear spreading the dollar to the yen and the eurocurrency.

The Federal Reserve’s policy of maintaining virtual zero interest rates, the potential for a generous stimulus package, as well as the distribution of the COVID-19 vaccine are collectively pushing the dollar down.

Supporting cotton, the U.S. Department of Agriculture's (USDA) weekly export sales report on Thursday showed net sales of 402,900 running bales for 2020-2021, up 4% from the previous week and 44% from the prior four-week average.

Positive news on coronavirus vaccines, along with hopes for more U.S. economic stimulus and its likely to boost demand for cotton lifted prices to their highest since April 2019 in the previous session.

CFTC data showed a 13% increase in cotton speculative trader Open Interest. The new buyers extended the net long 11,221 contracts to 69,997 contracts on 15th December. There were also 13,933 new commercial shorts reported on the week, extending the commercial net short to 140,536 contracts.

Next week the market will observe the Christmas holiday. It will close early on Thursday, Christmas Eve, and all-day Friday, Christmas day. Next week, USDA’s weekly export sales will be released on Wednesday, as the U.S. government will be closed both Thursday and Friday.

According to Plexus Cotton, ‘the path of least resistance remains higher, with 80 cents as the next target’.

Support and Resistance for Cotton #2 lies at 76.58 cents and 77.70 cents per lb, respectively.


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