Mumbai (Commodities Control) - For the week ended 9th April, NY Cotton May contract managed to put brakes on its six straight weeks of losing streak, as it ended with a 445 point or 5.71% gain. The most-active contract finished at 82.40 cents, as the May – July spread stood at 134 vs 132 points last week. ICE May Cotton touched its highest point of the week, past 83.40 cents.
Meanwhile the December contract finished notably higher on the week at 81.78 cents/lb. It is interesting to note that the Dec contract has larger open interest than either May or July; unusual at this point of the season.
On Friday, the cotton contract for May 21 Cotton closed at 82.4 cents per lb, up 99 points, Jul 21 Cotton closed at 83.74 cents, up 108 points and Dec 21 Cotton closed at 81.78, up 66 points.
U.S cotton weekly exports and April WASDE were a much needed relief for the cotton markets and helped break the price declining spree. Futures moved higher on tightening US and world aggregate balance sheets, improved US export data, continued weather concerns ahead of planting, and continuing mill fixation of on-call commitments.
In its April 2021 projections, World cotton ending stocks are 1.1 million bales lower amid weaker global 2020/21 beginning stocks this month—combined with slightly lower production and higher consumption, while projected trade is more than 900,000 bales higher.Largely driven by revised consumption in Vietnam for the previous year, 2020/21 beginning stocks are estimated to be 427,000 bales lower than in March.
Projected production in April is 276,000 bales lower than a month earlier, led by declines in Australia and Turkmenistan, and rising domestic textile demand in China accounts for much of the 387,000-bale increase in projected 2020/21 world cotton consumption. World trade forecast has been raised to 935,000 bales, its highest projected level in eight years, with China’s projected imports up 750,000 bales from last month, and Bangladesh’s up 200,000 bales.
On Thursday, the U.S Department of Agriculture's (USDA) weekly export sales report showed net sales of 269,900 Running Bales (RB) for the 2020/2021 marketing year, noticeably above the previous week and 8% higher than the prior four-week average. The report included exports of 371,700 RB, up 15% from the previous week. Net sales of Pima totaling 7,500 RB were up 73 percent from the previous week, but down 2 percent from the prior 4-week average.
Having said so, the market is skeptical about the projected consumption data by USDA. Inflation, likelihood of increasing interest rates, continued pandemic shutdowns, higher energy prices do not suggest an environment conducive to stable consumption, hence demand.
However, bearish technicals continue to be an area of concern for cotton, as the managed money net longs continue to decline for the week ended 6th April. The weekly data release from CFTC showed that the cotton speculative traders were 51,982 contracts net long, down 2,153 contracts from the last week mostly via new selling. The open interest stood at 294,957 contracts, up 4,187 contracts from last week. Commercials reportedly lifted hedges, reducing the net short 3,943 contracts to 128,172 contracts.
Coming back to the other bullish factors this week, Outside markets continued to support cotton prices, as the US stock market moved higher to yet another record high, while soybeans and corn are holding near multi-year highs.
On the crop progress front, only Texas (all in the South) and Arizona typically have any meaningful cotton acreage in the ground, and the initial report showed both states slightly above normal pace. Market hopes for rain sooner, to prepare the rest of the Southwest for planting. While the Mid-South and Southeast have seen sufficient rains lately, West Texas is still terribly dry. Some would say bone dry.
Next week, cash market traders will be focused on rolling their remaining May positions to July and clearing up any on-call business before May futures’ First Notice Day. Next Friday is also May options expiration, which will clear even more open positions from the lead contract. Planting weather and export sales activity will be in central focus.
Experts are, now, cautiously optimistic that the market has turned the corner and is headed higher again, especially if West Texas continues to miss out on rain.
Support and resistance for Cotton #2 lies at 80.21 cents and 84.53 cents per lb, respectively.
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