Cotton Khal (Akola) may underperform cotton seed oil cake NCDEX contract

Mumbai, 1 Jul (Commoditiescontrol): Lately, cotton prices have recovered in international markets, which should boost traders to venture into the natural fiber trading, as well as explore option in other byproducts such as Cotton Seed and Cotton Seed Oilcake. But, we would like to sound a word of caution for cotton trader is - wait before you take trade.

As per the seasonality analysis, the prices Cotton seed oilcakes, locally known as Cotton Khal are found to be underperforming near month contract of Cottonseed cake (NCDEX) . This fact is explained by the chart given below.


It is observed that since 2018, the reference range between Cotton Khal (Akola) and Cottonseed (NCDEX) ratio spread remain between 0.80x (discount)-1.20x (premium). Recently, the spread has turned lower after meeting resistance at 1.10, and its current reading near 1.02 suggests that there is potential for spread to contract from here. This fact is well defined by historical chart analysis, which is based on historical data. As such, Cotton Khal (Akola) may underperform Cottonseed (NCDEX) in the near term.

To further explain future price prospect of Cottonseed (NCDEX) let understand the below chart that depicts monthly seasonality of Cottonseed (NCDEX).


The chart considers data from 2009 to till date. It is observed that Cottonseed futures exhibits strongest during December, March and July, of which, December has recorded best performance by returning 5.21% growth on an average basis. July returned 4.99% while March clocked 4.65% price gains on an average basis. Among the rest, September month has historically -11.22% on an average basis and thus emerging as one of the worst performing period.

Although, the Cotton Khal spot prices are on a downtrend for the last few months but going by the seasonality chart this trend may reverse soon. This may be cuase of the mills closing their operations by this time due to lack of cotton seeds as the season is almost over. Further, demand for cotton cake increases as farmers prefer to buy cottonseed cake for two-three months as transportation becomes difficult during the rainy season.

(By Commoditiescontrol Bureau: +91-22-40015505)