US Cotton Weekly: Mill Fixation Not Aggressive Enough, Tug of War Decider in March

MUMBAI(Commoditiescontrol): The US cotton futures persisted losing streak for the fourth consecutive week on major short selling in benchmark May contract and liquidation on the March contract ahead of the first notice day on Feb 22.

The open interest rose in May contract hence making it the benchmark for analysis going forward.

The benchmark May contract settled at 77.16 cents/lb on Friday, marginally losing 0.6% over the week. Open interest as of Feb 15 showed 119,415 lots outstanding, up 15,866 lots from prior week at 103,549 lots.

The front month March contract settled at 75.72 cents/lb on Friday, down 1.3% over the week. Open interest as of Feb 15 showed 19,141 lots outstanding, down 54,141 lots from prior week at 73,282 lots.

The market maintained losing streak for 4 out of 5 sessions as the higher 2018/19 acreage forecast at 13.1 million acres, up 4% from 12.6 million acres last season by the National Cotton Council(NCC) kept the market under pressure. Even the robust export sales report for the week ended Feb 8, failed to provide enough firepower to cotton prices. (Full Report)

The settlement of position ahead of March’s first notice day on Feb 22, may be limiting gains. Once the March contract is off the market, then the market will turn to the reality of large trade shorts and spec longs.

The latest CFTC report, dated Feb 13, showed Managed money players(spec longs) reducing their net long position by 15.3%, week on week, to 69,378 lots while the trades net short position reduced 8.8% to 148,983 lots.

When compared same period last year, the trade shorts stood at 201,931 lots and spec longs stood at 103,337 lots, which was higher. Hence, this year, speculators seem to have exited their position earlier after prices touched near about 85 cents in early January.

However, the present position is quite large and speculators may even re-add their position during the month of March, when prices bottom out as trade shorts haven’t aggressively covered their position amid large on-call position.



The on-call sales fixation showed steady progress as it declined for the third consecutive week. The total on-call sales commitments stood at 14.1 million bales(480lb), down 3% from prior week at 14.5 million bales.

The current season three contracts witnessed fixations as on-call sales in March dropped 50.1% to 0.9 million bales, followed by May dropping 2.1% to 3.51 million bales and July inching lower 0.3% to 4.15 million bales. The combined is 61% of the total on-call position for all contracts at 14.1 million bales, which is large position to be fixed in the next 4 months or 120 days.

Hence, with prices heading to bottoming out, similar trend seen last season, mills may gradually begin fixing their position between 73-75 cents/lb, taking prices higher on the futures market in the form of trade short covering. That is why, the potential of sudden bull charge cannot be ignored.

It all depends on how the speculators long and trade short position pan out during the month of March, giving a clear indication as to where the market will head as the season progresses.

Meanwhile, the export shipments has been showing steady growth, with the previous three weeks(Jan 18-Feb 8) shipments crossing above 300,000 Running Bales(492lb). Sure, it remains 9% behind the required figure of 375,000 RB in order to reach USDA’s export forecast at 14.5 million bales(480lb) but it has a potential to cover up in the latter three months(Apr-July) of the 2017/18 season.

According to word received from Louis Rose, MD at Rose Commodity group and a cotton expert in US. Regarding this season’s shipment pace, much has been made about the new mandate that requires truck drivers to have their hours automatically logged. This is apparently an issue for some older vehicles, and we are hearing from warehousemen and truckers that this is causing delays.

He further added, There is no doubt that this has been (and continues to be) an issue for this season’s crop. Some see this mandate as a paradigm shift to slower and/or more costly shipments for cotton. However, we have much more faith in the ingenuity of Americans to circumvent the system than do these naysayers. It is likely that lines of code are (or already have been) drafted for testing regarding how to cheat the new electronic system.



Technical Ideas(March): Traders long and holding the same can revise up the stop loss to 75. Correction is being witnessed from the high of 84.65 and the lower top of 83.95.

Traders short by chance and holding the same can maintain the stop loss at 78.32. Resistance is at 78.17-78.32.

If Cotton prices trade above the Monday’s open and above 78.32 then buy with low of theweek as the stop loss or 75 whichever is lower. Correction will continue on fall below 75 for next retracement level of 73.72.

Correction will end on rise and close above 78.32 with bullish candle.

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