Cotton Weekly: WASDE Report Weighs On The Global Market

MUMBAI (Commoditiescontrol) – Cotton markets across the globe ended the week on a bearish note mainly due to not-so-encouraging USDA’s World Agricultural Supply Demand Estimates (WASDE) report.

Let’s first look at how the global market faired throughout the week.

US MARKET:

The US cotton market was on a bearish trend this week as the March contract on the ICE fell 2.32 percent over the week to settle at 72.27 cents/lb on Friday amid thin trading activity and bearish USDA WASDE report.

The WASDE report revised the world cotton production and ending stock numbers for 2016-17 (Aug-July) by raising it 1.1 percent to 105.34 million US bales (1347.36 lakh 170 kg bales) and 1.7 percent at 90.65 million US bales (1159.47 lakh 170 kg bales), respectively compared to the previous month's estimates. (Full Report)

For US, production estimates were raised 2.6 percent at 16.96 million US bales (216.93 lakh 170 kg bales) which raised the ending stock for the country by 1.7 percent at 5 million US bales (63.95 million 170 kg bales). Exports were also raised 2.4 percent at 12.5 million US bales (159.88 million 170 kg bales).

After spiking intraday high of 75.37 cents on January 5, the market was unable to generate additional upward momentum and fell 4 percent to 72.27 cents/lb on Friday, January 13.

Even the positive USDA upland sales could not stop the price fall on Thursday as sales increased 29 percent to 236,000 Running Bales (RB) compared to previous week's 183,700 RB. (Full Report)

The contract broke the key support level of 72.75 cents/lb on Thursday which opened doors for a temporary downside in the sessions ahead. However, the market is liekly to hold above the 70 cents, regroup and eventually reverse higher again, as per Plexus Cotton.



CHINA MARKET:

Chinese market ended the week a weaker note as the most active May contract settled marginally lower by 0.8 percent at 15,010 yuan/tonne on Friday compared to same day in the previous week at 15,140 yuan/tonne.

The market was influenced by the bearish outlook of the USDA WASDE report as it raised the country’s production estimate by 4.7 percent at 22 million bale (480 lb each) equivalent to 281.39 lakh 170 kg bale for 2016-17 compared to previous estimated figure in the month of December. The market settled lower by 1.2 percent or 185 to 15,180 yuan/tonne registering a 10 day low on Friday.

Open interest was marginally down 0.72 percent at 290,488 lots compared to 285,322 lots last Friday whereas volume increased 45 percent at 292,610 lots compared to 249,582 lots last Friday.

INDIAN MARKET:

In India, cotton futures witnessed mixed trend during the week as speculators were trading intra-day influenced by domestic market fundamentals. The benchmark January contract was tad higher 0.2 percent compared to previous week.

Open Interest witnessed a sharp decrease over the week of 23 percent at 4,539 lots on Friday whereas volume sharply up 48 percent at 3,651 lots.

The contract settled nearly 2 percent down at Rs 19,990/bale (170kg each) on Friday, registering its biggest percentage fall since October 24, mainly tracking the weak global cues.



DOMESTIC SPOT MARKET:

Spot cotton continued its bullish trend throughout the week as it increased further by nearly 3 percent mainly due to limited selling activity amid sustained demand.

The average price of cotton (30mm) in Maharashtra increased 3 percent to Rs 41,760/candy from Rs 41,090/candy in the previous week.

Similar trend prevailed in Gujarat with the average price of Shankar 6 A Grade cotton pegged at Rs 41,690/candy, 3 percent up compared to Rs 40,480/candy last week.

The major factor that pushed price higher was ginners limiting their selling activity amid sluggish arrival of raw cotton (kapas). The reluctance broke the enthusiasm of buyers as they made their purchases as per their requirements. The overall sentiment was cautious as they focused on the price bullish trend at present.

Export sentiment also weakened due to higher price that kept international buyers sidelined. As per market source, around 20-25 lakh bales have been exported with commitments up to 35 lakh bales in January.

On January 13, cotton price (ex gin) was traded between 77-79 cents/lb which was much higher than the major competitors across the globe.

Markets witnessed a sharp downward correction of nearly Rs 800/candy tracking weak global cues on Friday weighed by the bearish USDA WASDE report which increased the global cotton production and ending stock figures.

Raw cotton(kapas) arrival for the week (Jan 09-13) was at 7.39 lakh bales, 17 percent up compared to previous week (Jan 02-06) at 6.34 lakh bales. Although arrivals increased, they were below normal level.

During the peak season, daily arrivals on an average are around 2 lakh bales, however due to cash crunch and hoping higher price in the near futures farmers limited their selling leading to a decline in arrivals. Farmers were facing difficulties to withdraw cash from banks as cooperative banks in the areas were facing shortage of cash flow. They were satisfied with the quantity sold during December holding back stocks temporarily in hope of better price in the near future due to surging futures’ market.

The April contract on the NCDEX Futures surged over 3 percent on the week to settle at Rs 1020/per 20kg on Thursday. However, tracking weak global cues, the contract fell 1.62 to Rs 997.5/per 20kg on Friday.

Kapas in the spot market was trading between Rs 5,200-6,070/quintal across various markets, higher by Rs 300-500 compared to previous week.

Conclusion:

Supply may gradually improve, however reluctant selling by ginners amid sustained demand will keep price on an uptrend with minor oscillation in the coming week.

(By Commoditiescontrol Bureau; +91-22-40015534)