Mumbai (Commodities Control) –The ICE Mar cotton contract gained 93 points for the week ending Jan 15, as the Mar – May spread weakened to 92, still short of full carry. It is worth noting that the Mar contract managed to breach the 82 cents level on the week.
During the latest week, ICE cotton’s move higher was largely based on a large cut in the USDA’s official domestic production and carryout projections, strong US weekly export data, strength in corn and soybeans. Strengthening US currency, however, capped.
ICE cotton futures edged lower in thin trade on Friday, hurt by a stronger dollar, although a recent bullish U.S. demand and supply outlook helped the natural fiber to post its third straight weekly rise.
The cotton contract for Mar 21 closed at 80.7 cents, down 45 points. Spot March cotton closed up 258 points on the month and year.
May 21 Cotton closed at 81.62 cents, down 38 points, Jul 21 Cotton closed at 82.37cents, down 38 points and Dec 21 Cotton closed at 77.02 cents, up 22 points.
"The market is still reacting to what happened in the crop report," said Sid Love, commodity trading adviser at Kansas-based Sid Love Consulting, adding that with a holiday coming up trading was muted.
"The reduced crop size has certainly been a support and lower rural cotton supplies are also adding a little bit of a support..."
On Friday however, the U.S. dollar rose 0.5% to a three-week high against key rivals, making greenback-denominated cotton more expensive for investors holding other currencies.
Earlier this week, the U.S. Department of Agriculture in its latest World Agriculture Supply and Demand Estimates (WASDE) report showed lower U.S. production and ending stocks for the 2020/21 crop year. The USDA lowered its outlook for U.S. production by nearly 1 million bales to 15.0 million, while ending stocks estimates were 1.1 million bales lower relative to last month.
On Thursday, the U.S. Department of Agriculture's weekly export sales report showed net sales of 326,000 running bales for 2020/2021, up 113% from the previous week and 2% from the prior four-week average.
Meanwhile, CFTC data showed cotton specs reduced their net long by 1,010 contracts to 69,702 contracts in the week ending 12th January. Experts note that the spec position remains stacked in a heavily bullish manner and is vulnerable to profit-taking.
On the technical side, "ICE futures should experience resistance near 80 – 81 cents and then in 100-point increments up to 85, basis March, over the near- to medium-term," said Louis Rose, director of research and analytics at Tennessee-based Rose Commodity Group, in a note.
Plexus cotton notes that, ‘from a technical point of view the primary uptrend is alive and well... but a pull back into the current trend channel is expected over the coming weeks, to somewhere in the high 70s.’
Having said so, market analysts see no immediate need for trades to go shorts. They expect the market to remain well supported on dips and believe that prices are headed higher over the coming months.
Next week, the market will eye U.S exports data, movements in equity markets and political news. In particular, Wednesday’s inauguration plans and the threatened violent protests around the US add a great deal of tension and uncertainty to the short-term forecast. The market will be closed on Monday for the U.S. holiday Martin Luther King Jr Day.
Immediate support and resistance for Cotton #2 lies at 80.08 cents and 81.74 cents per lb, respectively.
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