Mumbai, 30 Jul (Commoditiescontrol): ICE Cotton posted a nice rebound on the week, and set their biggest weekly rise since end-April, bolstered by concerns about supply shortfalls on forecasts of hot and dry weather in key growing areas. Further, the sluggish crop progress report in the United States cotton growing belt and slowing of oild crop export sales due to tight availability, came in handy.
ICE Cotton December closed at 96.74 cents, up 0.53 cent, March 2023 finished at 93.51 cents, up 0.84 cent and July 2023 settled at 90.18 cents, 0.87 cent higher; estimated volume was 18,274 contracts. Total futures market volume fell by 2,221 to 11,134 lots. Data showed total open interest gained 380 to 185,369 contracts in the previous session.
For the month of July, December cotton finished up 9.85 cents for the week, down 2.10 cents on the month and up 4.09 cents on the year. Since posting a low of 82.54 cents just ten sessions ago, December has recovered nearly 14 cents and climbed back above its former long-term uptrend line.
Open interest has added about 7,500 contracts over the last two weeks, which is an indication that the spec washout is over.
Analysts have attributed the rise in prices of natural fibre to extremely hot weather conditions in the growing region of West Texas. The dry land cotton (in Texas) is pretty much abandoned in substantial amounts and the irrigated land is just struggling... the creation of this kind of a basis around the lower 90 cent is based off of this scorching dryness and heat wave taking a toll in the U.S., they added.
Industry firm Cotton Outlook (Cotlook) on Friday reduced its projections for world production, with surplus of production over consumption in 2022/23 placed at 640,000 tonnes, down from 1,114,000 previously.
The CFTC Commitment of Traders (COT) report showed spec funds in cotton futures and options trimming their net long position by 1,366 contracts to 33,331 contracts as of Tuesday.
Large spec traders were just 3.63 million bales net long, which was the lowest position since August 2020. This means that hedge funds don’t have a lot left to liquidate, which has eased selling pressure and allowed the market to regain its footing.
By contrast the outright short position of large spec traders grew to 2.57 million bales, which was the largest since June 2020. Some of these newly established shorts have already been stopped out during this latest advance.
There are several factors helping the market to gain some traction, namely the dismal state of the US crop, expectations of a more dovish Fed going forward and an improving technical picture.
The US crop has been struggling, as the heat dome over Texas continues to depress yields. Not much dryland acreage is expected to survive in West Texas and pivot-irrigated fields are stressed as well. Most local traders now expect a Texas crop of somewhere between 4.0 and 4.5 million bales only, with the US crop probably at not much more than 14.0 million bales.
US export sales were slow last week, as just 73,800 running bales of Upland and Pima were sold for all three marketing years combined. However, the positive takeaway is that we are still not seeing any meaningful cancellations! Shipments were slow at just 256,100 running bales.
With just 10 days of data to go, total commitments for the current season are now at 16.6 million statistical bales, of which 13.6 million bales have so far been exported. Last year we had 17.45 million in sales and 15.75 million in shipments at this point in time.
A snapshot of the US balance sheet this season gives us a supply of 20.67 million statistical bales, minus 2.48 million in mill use and 13.6 million in exports so far, which leaves 4.59 million bales in existence. However, the EWR report as of this morning showed only 2.4 million running bales still open, which leads us to believe that there will be an adjustment for underreported shipments down the road.
USDA’s weekly Cotton Market Review declared the week’s average cash price as 104.04 cents/lb for the 618 bales sold at spot. USDA had the season’s total sales as 1.624m bales, compared to 1.387m at the same time last year.
The Cotlook A Index (old crop) was 130.4 cents/lb after a 50 point boost on July 28. USDA’s AWP for cotton was raised back to 104.28, after a 32 point boost.
ICE Cotton Dec'22 futures would find support at 95.54 cents and likely to meet resistance near 97.79 cents.
Analysts are of the view that the washout in commodities seems to be behind us, as spec positions have been greatly reduced and the outlook for prolonged negative rates is likely to bring some buying back into stocks and commodities.
The price action has been constructive, although volume has been seasonably slow. Unfixed on-call sales of 8.75 million bales in new crop, of which 5.93 million are on December, are providing strong underlying support, while scale up grower selling is likely to provide resistance from current levels on up.
Demand destruction and recession are still worrying traders, but with specs basically ‘sold out’ and with stagflation likely to prevail, the path of least resistance seems to be higher over time. The next upside target is placed at 103.17 cents.
(By Commoditiescontrol Bureau: +91-22-40015505)
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