Mumbai, 25 Jun (Commoditiescontrol): ICE cotton futures plunged on Friday, to mark their worst week more than a decade, as growing recession risks compounded concerns over demand for the fiber, traders said. Further, the prospect of increased acerage under cotton cultivation in India and other growing regions in the world, may result in increased availability over the next 3-4 months.
Cotton futures saw some sharp losses this week. It was a devastating session for cotton complex, which continued to witness selloff with another triple digit loss. That left traders financially poorer and speechless, traders said. From last Friday's close, the market has spilled some 22.00 cents lower.
ICE July cotton settled at 103.76 cents, down 32.56 cents, December closed at 98.05 cents, down 3.96 cents and March 2023 finished at 93.52 cents, 4.21 cents lower. Today's estimated volume was 43,493 contracts.
ICE July, now in deliveries with no limits, fell 3,256 points or nearly 24%. New crop futures were also 396 to 421 points in the red at the close. The July to December premium is now just 5.71 cents/lb.
December was down a whopping 17.11% on the week, closing below a dollar for the first time since January.
July was holding up relatively well this week compared to the rest of the board, as mills continued to scramble out of unfixed positions, which kept the expiring month supported. Mills have only themselves to blame for this self-inflicted wound, as they have been procrastinating on their fixations for way too long despite all the warnings, analysts said.
What’s worrisome is that July has been trading in a 130-156 cents range since the end of March, and back then the unfixed on-call position still amounted to 3.56 million on May and 5.24 million bales on July. That means that over the last three months mills had to fix nearly 9 million bales at an elevated price level, some 30-35 cents above the current break-even on yarn, they added.
However, now with the July to December premium is now just 5.71 cents/lb, the prospects for defaults are likely to rise in the near terms.
Meanwhile, on crop progress front, the data showed that cotton crop at 22% squared as of Sunday, slightly behind the 23% pace. This provides little insight to futures course of price action.
Apparently, investors took stock of a federal weekly export sales report, which showed that net sales of 16,200 running bales (RB), a marketing year low for 2021/2022, were down from the previous week.
The data also showed net sales of 277,300 RB for 2022/2023, primarily for China (238,100 RB), while exports of 371,900 RB were up 11% from the previous week, and gained 1% from the prior 4-week average.
USDA FAS data tallied export sales of cotton in the week ending June 16 at 16,207 RB for old crop upland, a marketin year low and was down 80% from the same week last year.
New crop bookings were reported at 277,300 RB, with 238,100 RB sold to China. Outstanding old crop cotton sales are 66% larger than year ago at 4.408 million RB.
The total forward commitments were 4.02m RBs as of June 16, a 75% increase on year. As for old crop exports, the weekly data showed 371,867 RBs took the season’s total to 11.146m RBs. That is down 17% but compares to the 44% lag on year in January.
Total commitments are 112% of the full year WASDE projection, 2% ahead of the average pace. Catch up is still needed on shipments with 80% of the expected full year number shipped, vs. the 87% average pace. The marketing year ends on July 31.
CFTC’s weekly Commitment of Traders report showed managed money firms were closing longs through the week that ended June 21. That reduced the group’s net long by 2,140 contracts to 61,110 contracts from the previous week but still likely feeling some pain in the wallet from this week’s price action.
On the other hand, Commercial cotton traders slashed their open interest by 14,988 contracts (7.9%) through the week, reducing their net short by 5,700 contracts to 98,900. That was their weakest net short since August of 2020.
The net spec position dropped for a 6th consecutive week and amounted to just 47% of what it was back in October. With the market coming off sharply on sell-stops since the last report, the net spec position has probably been trimmed back to around 4 million bales by now.
Hedge funds are probably not too keen on getting structurally short commodities considering the inflationary environment we are still in, but that could change if demand destruction proves to be worse than expected. The technical weakness has probably brought in some momentum traders on the short side, which has exacerbated the selling pressure.
The markets would continue to witness some more liquidation pressure, before it starts to achieve some sort of weather premium on a price recovery in coming weeks, analysts beleive.
Analysts continue to contend that specs are exiting the market as the cost of capital rises and amid severe economic concerns. At some point USDA will likely significantly reduce its estimate of 2021/22 aggregate world consumption.
Next Thursday, USDA will issue its planted acres report. Early expectations are calling for an increase in plantings for this season.
The Cotlook A index fell another 6 cents on June 23 to 150.50 cents. USDA lowered the Adjusted World Price for cotton by 4.52 cents to 135.95 c/lb.
Cotton Dec'22 futures would find support at 95.99 cents and resistance at 101.46 cents.
(By Commoditiescontrol Bureau: +91-22-40015505)
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