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Weekly: Cotton #2 Replicates Stellar Performance from Past Week on Bullish WASDE, Robust US Exports & Trade Shortcovering

15 Feb 2021 8:35 am
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Mumbai (Commodities Control) – NY Cotton extended its northward price rally for the week ended 9th February, as the active May contract of ICE futures settled with over 5.5% of gains. During the week, the lead month of cotton futures touched the highest point of 88.75 cents per lb during 8th-12th February.

It is to be noted that Cotton #2 bounced back for the week ended 5th february as it settled with gains of 210 points.

Cotton rose on Friday and posted its best week since mid-December, as demand remained robust and hopes increased for a stimulus package from the United States, though many investors were on the sidelines ahead of a U.S. holiday.

The cotton contract for Mar 21 Cotton closed at 87.27 cents, up 86 points and May 21 Cotton closed at 88.66 cents, up 79 points. Jul 21 Cotton closed at 89.41 cents, up 75 points and Dec 21 Cotton closed at 83.89 cents, up 11 points.

From the low of 48.35 cents on April 1 last year, prices have gone up over 40 cents or nearly 83%.

It is interesting to note that barring a deep cut on Wednesday, when Cotton futures slid nearly 3% retreating from a more than two-year high, NY cotton futures marked triple digit gains in every single trading session during the week. Only on Wednesday, elevated prices prompted mills to trim purchases.

On Tuesday, in particular, ICE cotton futures posted triple digit gains following the release of monthly World Agriculture Supply and Demand Estimates (WASDE) data by the U.S. government.

The U.S. Department of Agriculture in its latest monthly supply and demand report lowered its estimates for U.S. ending stocks for the 2020/21 crop year, but left the U.S. production forecasts unchanged.

The 2020/21 world cotton forecasts included higher production, consumption, and imports, led by changes in China. In its February 2021 estimates, World production is projected 1.3 million bales higher this month, with China’s forecast raised by 1.5 million bales. India’s production estimate is reduced 500,000 bales on increasing evidence of pest infestation, while Pakistan is 200,000 bales higher and Australia 100,000 bales higher.

Having said so, market experts note that demand is holding up well, referring to Thursday's bullish export sales data, while noting there is increased optimism in the market for an additional stimulus package from the United States.

Not to forget that week after week, stellar US export sales continue to provide a reason for the market to move higher.

In its weekly export sales report on Thursday, the U.S. Department of Agriculture showed that exports of 433,600 running bales (RB)- a marketing-year high - were up 36% from the previous week, of which 143,200 RB were shipped to China.

Meanwhile, U.S. President Joe Biden pushed for the first major legislative achievement of his term on Friday, turning to a bipartisan group of local officials for help on his $1.9 trillion coronavirus relief plan.

CFTC data showed cotton traders covered shorts on the week ending 9th February, increasing their net long to 68,233 contracts. Commercials added 20,500 new shorts for the largest weekly hedge since the week ending 11th September 2018 of 203,251 contracts or approx. 20.74m bales.

Meanwhile, JP Morgan announced that a fifth commodity ‘supercycle’ may have begun. With agricultural prices soaring, metal prices hitting the highest in years and oil well above $50 a barrel, JPMorgan Chase & Co. is calling it: Commodities appear to have begun a new supercycle of years-long gains.

Everyone from Goldman Sachs to Bank of America are calling for a commodities bull market as government stimulus kicks in and vaccines are deployed around the world to fight the coronavirus.

This situation simply indicates that the trade shorts need to cover, while speculators and index funds are quite comfortable holding on to their longs.

Considering that US cotton is selling out fast, speculators currently have no reason to get out of their longs.

Analysts also pointed out to the fact that, with the price of corn, sorghum and soybeans going up like a rocket it is in a way hard to see a lot of shifting of acres back to cotton. Gains in the grains and equities market were also supporting cotton.

The cotton market will be closed on Monday for the U.S. Presidents Day holiday. Trading on the ICE Futures Exchange will resume Monday night. Also, the holiday will push next week’s export sales to Friday.

Next week, the market will be gearing up for spot March’s delivery period on Monday, Feb. 22. Meanwhile, immediate support and resistance for Cotton #2 lies at 85.60 cents and 91.15 cents per lb respectively.

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