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Weekly: NY Cotton Posts Second Weekly Decline amid Lack of Strong Bullish Cues, Long Liquidation; Eyes on Speculative Action

7 Mar 2021 4:36 pm
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Mumbai (Commodities Control) – NY cotton May futures contract shed 107 points or 1.20% for the week-ended 5th March, finishing at 87.76 cents. May futures witnessed declining trend after having touched the highest point of 92.85 cents early in the week. May-July spread stood at 91 points this week.

Negative settlement in the latest week followed prior week’s declines as NY Cotton May futures shed 165 points or 1.82% for the week ended 26th February, finishing at 88.83 cents per lb. It is to be noted that the most-active ICE cotton futures went over 95.60 cents until mid-week.

On Monday, ICE cotton futures gained 3% on Monday bolstered by hopes for stronger demand as the global economy recovers, while a rebound in wider financial markets added to the upbeat mood. Cotton contracts for May closed at 91.57 cents, up 274 points.

However, between 2nd and 4th March, most active ICE cotton futures shed 443 points primarily due to subdued global financial market sentiments along with grains markets, availability of cheaper Indian and African exports and stronger dollar.

Thursday’s session started out on a promising note, with May ’21 futures posting a high of 89.39 cents after a better-than-expected US export sales report. But prices came under renewed pressure after the 10-year treasury yield rallied on comments by Fed Chair Powell, stating that there was potential for a temporary jump in inflation.

On Friday, meanwhile, ICE cotton futures edged up buoyed by bets for a reduction in U.S. cotton planting estimates in a federal report due next week, though caution over the report kept prices in a narrow range. Also helping the market end with gains were the strength outside markets of grains and energies.

On Friday, May Cotton closed at 87.76 cents, up 62 points, July settled at 88.67 cents, up 54 points and December cotton ended at 84.54 cents, up 54 points.

Market participants strongly believe that the crop is shrinking and consumption is going up, thus awaiting the U.S. Department of Agriculture (USDA) monthly World Supply and Demand Estimates (WASDE) report due on Tuesday.

Having said so, cotton Traders add that the market could still fall if estimated reductions in the cotton crop size and increased exports in the report come below expectations.

Meanwhile, experts see core speculators holding onto their positions and expect the bull market to resume. Many cotton-producing counties in South and West Texas are currently in a moderate to severe drought and that should support prices. Also, China has been one of the main reasons behind the rise in international cotton prices and it continues to absorb a lot of cotton and yarn, particularly from the Indian Subcontinent.

The weekly data release from CFTC showed managed money cotton traders were 66,031 contracts net long as of 2nd March. That was a 6,423-contract reduction on the week via long liquidation. Long side positions dropped by 6,902 contracts, while short side positions witnessed a comparatively smaller decline of just 479 contracts. The open interest for the week was registered at 294, 976 contracts vs 301,974 contracts last week.

Experts still see the recent price drops as a correction in a bull market until the primary uptrend line 79 cents is broken.

In the coming week/s, technical experts see uptrend initiating as soon as the market rises above resistance level 90.75 cents which will be followed by moving up to resistance level 94 cents. However, a downtrend may be expected to continue, while the market is trading below resistance level 90.75 cents, which will be followed by reaching support level 85 cents.

Infact market analysts are hopeful of another rally in ICE cotton futures towards the 90s and possibly a new high, unless there's a stock market crisis.

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