Mumbai (Commodities Control) - Despite the 131 point drop for ICE May cotton on Friday, the contract was still 131 cents higher for the week ended 16th April, while the ‘now-lead’ month July cotton registered 129 points or 1.54% gains to end at 85.03 cents. May-July spread stands at 132 points vs 134 points last week.
Cotton #2, on Friday, retreated from a 1-month peak hit in the previous session, but hopes for an economic rebound, dry weather concerns in West Texas and a softer dollar propelled prices to settle with a second straight weekly gain.
ICE cotton contracts for May closed at 83.71 cents, down 131 points; July settled at 85.03 cents, down 123 points and December ended at 82.53 cents, off 55 points. May cotton touched the highest point near 85.30 cents per lb during the later part of the week.
Last week, NY Cotton May contract ended with a 445 point or 5.71% gain and finished at 82.40 cents, for the week ended 9th April.
There was a huge disparity in the spread activity between old- and new-crop markets this Friday and this difference is attributed to speculators rolling out to the December contract. With delivery for spot May less than one week away and the potential for worsening adverse weather for West Texas, some traders , it seemed, preferred to bypass the July futures altogether and to take their chances out in the new-crop contracts.
However, fund buyers are yet to gain confidence as the net longs declined for the seventh straight week for the week ended 13th April. Managed money was reported at 50,086 contracts net long in cotton from the CFTC’s weekly update. That was a 1,896 contract reduction to their net long for the week ending 13th April, via long liquidation. It is to be noted that for the latest week, short positions dropped along with long positions. Meanwhile, the CoT report showed commercials were lifting hedges during the week, but only reduced their net short to 127,032 contracts.
It is interesting to note that the week started with a steep decline in NY cotton prices tracking weakness in grain markets, while forecasts for some potentially beneficial rain in top-cotton producing West Texas added further pressure. The market felt the sting of increasing COVID-19 infections around the world. May futures on ICE cotton ended 226 points lower at 80.14 cents.
However global cotton posted a swift rebound between Tuesday and Thursday, on the back of softer dollar, dry and hot conditions in the producing belts of West Texas along with bullish macro economic data.
Hopes for a fast economic recovery from the pandemic were bolstered by data that showed U.S retail sales rose by the most in 10 months in March and weekly initial jobless claims fell to its lowest level since mid-March 2020.
All the bullish data, infact, effectively offset the lower U.S export sales number this week.
The U.S Department of Agriculture's weekly export sales report showed net sales of 122,300 Running Bales for 2020/2021, down 55% from the previous week and 54% below the prior 4-week average.
Having said so, experts advise to keep an eye on some of the newer Covid variants. Research studies suggest that the South African variant may evade the Pfizer vaccine, while Chile has seen a record amount of new cases and intensive care patients despite having a higher vaccination rate than the US.
Meanwhile, the Cotton Association of India has raised its estimates on Cotton crop for the 2020-21 season at 360 lakh bales from its previous estimate of 358.50 lakh bales, last month.
The total cotton supply for the months of October 2020 to March 2021 is estimated by the CAI at 459.26 lakh bales.
Further, the CAI has estimated cotton consumption for the months of October 2020 to March 2021 at 165.00 lakh bales, while the export shipments upto 31st March 2021 are estimated by the CAI at 43 lakh bales.
Stock at the end of March 2021 is estimated at 251.26 lakh bales, including 95.00 lakh bales with textile mills and the remaining 156.26 lakh bales with the CCI, Maharashtra Federation and others (MNCs, traders, ginners, MCX, etc. including the cotton sold but not delivered).
Summing it up all, the technical analysts are once again bullish on Cotton#2. They note that Cotton prices are now trading above their 20 and 100 day moving average as the trend has turned to the upside which makes them believe that 95 cents will not be the contract high in 2021 as the entire commodity sector has caught fire across-the-board rallying significantly in the latest week.
They add that the chart structure is improving; brimming with high volatility.
Support and resistance for Cotton #2 (July’21) lies at 83.90 and 86.92 cents per lb,
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