Mumbai (Commodities Control) - NY cotton May futures contract for the week ended 19th March, finished at 84.68 cents/lb. The most-active contract shed 288 points or 3.29%; posting its worst week since October. During the week, May’21 cotton contract cotton prices declined to the lowest level of 83.65 cents; lowest since March 10.This is the fourth consecutive weekly decline for ICE cotton futures. May-July spread stands at 104 points.
NY cotton May futures contract shed 20 points or 0.22% for the week ended 12th March, finishing at 87.56 cents/lb—a week marked by high volatility due long position liquidation by managed money at higher levels and short covering by trade at lower levels.
Clearly, for the latest week further speculative liquidation has been responsible for the market’s retreat. Meanwhile, mill on-call fixations along with fresh demand have continued to support the market well above the 80 cents level. Weakness in the market in the later part of the week was surprising given the robust export report, released on Thursday. Strengthening US currency was responsible in a big way to the weekly decline.
On Friday, ICE contracts for May 21 Cotton closed at 84.68, down 77 points, Jul 21 Cotton closed at 85.72, down 70 points and Dec 21 Cotton closed at 82.51, down 8 points. Cotton prices fell as the dollar strengthened and concerns over U.S.-China trade relations resurfaced.
CFTC’s weekly CoT report showed managed money was 59,653 contracts net long in cotton on 16th March. That was an increase of 1,822 contracts to the net position wk/wk via short covering. Long side positions increased by 404 contracts, while short side positions witnessed a decrease of 1,418 contracts. On the other hand, Trade reduced their long side position by 487 contracts and short was up by 3,046 contracts. The open interest for the week was registered at 289,396 contracts vs 288,051 contracts last week.
The week started out for ICE cotton with an early 200-point slippage, before gathering itself to close moderately lower on Monday. ICE Cotton contracts for May closed at 86.72 cents, down 84 points.
A small uptick on Tuesday was the only green mark on a weekly basis for NY cotton, futures rose on mill fixations and on expectations that sparse rains recently may offer little respite for the natural fiber from a dry spell in Texas, a top growing region. Cotton contracts for May 21 closed at 86.92 cents which was up by 20 points.
On Thursday, however, came the deep decline as ICE cotton futures fell to a one-week low. May 21 closed at 85.45 cents, down 106 points.
Demand concerns are re-emerging, as Europe may have to conduct a second complete shutdown. Italy and France will be closed for Easter and Germany may follow. Stats show that only 8% of Europe has been inoculated. The European Union was slow to order adequate amounts of vaccines when they were first available.
Considering the low trading volume and the relatively small change in open interest, market analysts don't think that these positions have materially changed since the last report.
Technically the market looks vulnerable, but another positive export sales report or renewed worries about the expanding drought in Texas will turn the tide for Cotton#2.
Eyes will be on speculators’ action. If they continue to exit longs, then prices will continue to rally southward. However, the market participants note that the recent sell-off is a correction, not a trend change, and that the shorts need to be careful. They are of the view that the US balance sheet is tight for the season which could put the fibre back on the bullish track.
Traders will keep a keen eye on US weather forecasts as they make trading decisions next week. Scheduled index fund rolling, will be under focus, commences on the last two days of the month, which often results in weakness for the front month.
Next week the planting of the 2021 crop will begin. The first look into the size of the crop comes on March 31, when USDA releases its new crop planting intentions data. Currently, the government system suggests 12.00 million acres will be seeded to cotton for 2021. However, with high flat prices for corn, plus a strong corn basis across the Delta and Southeast, some cotton growers may opt out for corn.
Support and resistance for Cotton #2 lies at 81.50 and 87.89 cents per lb, respectively.
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