Mumbai, 5 Aug (Commoditiescontrol): Cotton markets experienced heightened volatility during the week ending August 2nd, driven by a combination of sluggish demand, robust crop progress, and the influence of a softer U.S. dollar. The interplay of these factors created a turbulent trading environment, with cotton prices fluctuating amid mixed market sentiment.
The week concluded on a positive note for cotton futures, with prices on the Intercontinental Exchange (ICE) rising on Friday. The December cotton contract gained 17 points, closing at 68.25 cents per pound, while the March and May contracts advanced to 69.87 and 71.14 cents per pound, respectively. This marked a weekly gain for cotton, largely supported by a slide in the U.S. dollar following weaker-than-expected employment data.
The U.S. dollar fell to a four-month low after the July employment report revealed disappointing job growth. This fueled speculation of a 50 basis point interest rate cut by the Federal Reserve in September, making U.S. cotton cheaper for international buyers and providing a boost to demand. However, despite the uptick in futures, the broader market sentiment remained mixed, influenced by a $2.08 per barrel decline in crude oil prices.
While the weaker dollar offered some support, the cotton market faced significant headwinds. The USDA's weekly Export Sales report highlighted a notable reduction of 1.09 million running bales (RB) in old crop upland cotton sales for the week ending July 25. This decrease was largely due to cancellations from key importers such as China, Pakistan, and Vietnam. Nevertheless, a net increase of 1.36 million RB in new crop sales somewhat offset these losses, as the 2023/24 marketing year approached its end.
Despite the rise in new crop sales, shipments totaled only 129,929 RB, slightly down from the previous week. This reflects the ongoing challenges of weak demand and market oversupply. Traders pointed to the cancellations, resales, and low shipment volumes as clear signs of a sluggish demand environment.
Adding to the market's bearish outlook were weather forecasts predicting dry conditions in key U.S. cotton-growing regions, alongside scattered rainfall in the Southeast. These weather conditions, coupled with expectations of larger crop yields and diminished global demand, have driven cotton prices to their lowest levels since October 2020.
The U.S. cotton growing season remains ahead of schedule, with 87% of crops squared by July 28. However, crop condition ratings, particularly in Texas, have shown signs of deterioration. Globally, the old crop carryout decreased by 1.66 million bales, while new crop production increased by 1.05 million bales, reflecting a complex supply-demand dynamic.
Meanwhile, speculative funds have continued to increase their record net short positions in cotton futures and options, signaling ongoing bearish pressure. According to the latest data from the Commodity Futures Trading Commission (CFTC), managed money spec funds added 2,858 contracts to their record net short positions, reaching a total of 47,441 contracts as of July 30.
As the market continues to navigate these key factors, technical analysts are focusing on support and resistance levels for the December contracts, identified at 67.86/67.47 cents and 68.73/69.21 cents, respectively. The ongoing volatility underscores the uncertain outlook for cotton as traders weigh the impact of various economic and environmental influences on the market.
(By Commoditiescontrol Bureau: 09820130172)
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