Mumbai, 10 Sep (Commoditiescontrol): ICE cotton futures have managed to eke out gains this week, although the natural fiber reported moderate price increase, as in case of other commodities, the softening of dollar and supply worries lingered in the run up to a key supply-demand report from the U.S. Department of Agriculture. The next week would also see the return of U.S. weekly sale report.
USDA has promised to release weekly export sales next week on Sept. 15. That data has been absent from the market ever since the Agency attempted to move its reporting services to a new platform. That website froze-up, and thus there have been no "running numbers" released in a month.
The USDA's monthly World Agricultural and Supply Demand Estimates report is due on Sept. 12.
Meanwhile, on Friday the benchmark December contract on ICE Futures closed at 104.84 cents, up 1.00 cent, March 2023 finished at 101.45 cents, up 0.70 cent and July 2023 settled at 96.27 cents, 0.80 cent higher
The December contract jumped as much as 3.5% on Thursday, and is 1.63 cents or about 1.3% higher for the week. But is off 8.37 cents on the month. It fell 12.3% last week, its most in over two months. Overall, the new crop market is up 12.19 cents for the year.
This week, most commodity markets felt the hit of U.S. dollar ascending to two-decade highs, however it has since come off sharply, hitting its lowest since Aug. 30 during early Friday session. A stronger greenback makes U.S. cotton more expensive for overseas buyers.
Federal Reserve Chairman Jerome Powell hinted at a 0.75% rate hike for the end of the month’s FOMC meeting, as other countries begin raising their interest rates. Currency movement will continue to dominate commodity prices till the announcement is out.
Another important factor that played on traders mind was lack of exports data from USDA. The absence of key in recent times caused tremendous uncertainty among traders/dealers. Export account for about 90% of U.S. demand.
The market's have been selling off partly because of continued Chinese COVID-lockdowns, and will probably try and hold the 100 cent level and rebound later because even if U.S. demand remains lacklustre, there is no adequate supply available.
On Monday the USDA will release its next WASDE, which will get a lot attention after last month’s shocker. US production might increase slightly if the USDA adopts a higher planted acreage number as suggested by the FSA, which makes a 13+ million crop likely. But there are several origins that will see their output decline. Pakistan’s flood disaster has taken a huge bite out of the crop, which is probably 1.5 million statistical bales below the USDA’s 6.2 million bales by now. Brazil’s current crop looks about 300,000 bales lower on disappointing yields and the same goes for Argentina, where production will come in 250,000 bales lighter than expectations.
While global production could see a drop towards 115.5 million bales, lot of attention will be grabbed by global mill use. The USDA had mill use still at 119.1 million bales last month, which is clearly too high when mills are sitting on unsold yarn stocks and are running their factories at much reduced rates.
Cotton complex is currently witnessing a standoff between buyers and sellers. Merchants and growers are in no hurry to drop their prices given the still uncertain crop outlook, while mills are equally patient given the large inventories and slow business conditions.
Analysts have pointed out that last season cotton was backed up at origin due to a slow supply chain, these stocks have now shifted to consuming markets, where they have accumulated in the form of cotton and yarn. While the downstream sector is in the process of clearing out excess inventory, it may take a while before mills are back to running at normal capacity again.
As regards crop progress data from NASS, as much as 39% of the cotton crop’s bolls open. That was up from 28% last week, and 7% points ahead of the average. As for cotton conditions the report showed 35% good/ex at the national level which converted to a 294 on the Brugler500 index. That is up from 286 last week. USDA’s AWP for cotton was a substantial 9.94 cents lower to under $1. FAS reported 94.92 cents/lb.
USDA’s weekly Cotton Market Review showed 3,365 bales were sold at spot during the week for an average price of 108.56 cents/lb. The online cotton trading platform, The Seam, had Sep 8 sales of 3,970 bales for an average price of $1.09/lb.
The Commitment of Traders report had cotton spec traders at 50,109 contracts net long as of Sep 6. That was a 3,784 weaker net long fueled by long liquidation. Commercial hedgers also reduced their shorts for a 7,700 contract weaker net short of 696,353.
Interesting trend is emerging on the open interest front. There are hardly any changes during this week. Overall OI went up from 209,300 to 211,500 contracts over this seven-day period, while December saw its open interest change from 112,900 to 113,200 contracts. This means that there hasn’t been much liquidation, or maybe longs that were getting out on sell-stops were replaced by new longs at lower levels. At any rate, the lack of liquidation suggests that speculators either have more staying power than in June, or that spec liquidation is still ahead of us.
The latest CFTC spec/hedge report for the week of August 24-30, during which December traded between 118.53 and 111.21 cents, showed that speculators were still in buy mode, adding 0.27 million bales to boost their net long to 3.04 million bales. The trade was a seller of 0.24 million bales net, thereby increasing its net short to 10.45 million bales. Index funds were little changed at 7.41 million bales net long.
The CFTC on-call report revealed that mills didn’t do much fixing during last week’s decline. As of last Friday, when December was already down at 103.21 cents, mills still had 9.26 million bales in on-call sales open from December to July, which was actually up 0.3 million bales from the week before. These unfixed sales should provide a decent layer of support, although mills seem to be in no hurry to pull the trigger yet, due the uncertain business outlook.
Well! the focus next week will be on WASDE report and particularly on China imports. In the August report the rest of the world (ROW) production surplus was at 7.92 million bales, while Chinese imports were estimated at 9.0 million, thus resulting in a small drawdown in ROW stocks. Last season the ROW numbers showed a surplus of 6.74 million bales, while Chinese imports were at 8.1 million bales, which also led to a small drop in ROW stocks.
However, if we assume #that ROW mill use is quite a bit lower than the USDA is showing, then the ROW might actually produce a larger surplus, despite smaller crops in Pakistan and South America. It is likely that China will import less than last season, considering that Chinese prices have fallen below international levels. Not only has China slowed its pace of raw cotton and yarn imports in recent months, but we are now seeing a reverse trade flow, with China selling cheap yarn on the Indian Subcontinent. In other words, we expect ROW ending stocks to rise by several million bales this season.
So it seems that the market is starting to regain its footing after the recent selloff. Last two days of gain lacked conviction, given the low volume. Clearly, the standoff between buyers and sellers persist, as merchants and growers are in no hurry to drop their prices given the still uncertain crop outlook, while mills are equally patient given the large inventories and slow business conditions. It is likely that the WASDE report may throw a light on future move, but it may so happen Cotton could tread a narrow range till clarity on demand and supply is achieved.
For Monday, support for December cotton is at 103.92 cents and 103.01 cents, with resistance at 105.79 cents and 106.75 cents.
(By Commoditiescontrol Bureau: +91-22-40015505)
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