Mumbai (Commodities Control) - It was a tumultuous week for most of the commodities across the table, as it was for NY cotton, as May futures contract for the week ended 26th March. The ICE May cotton contract suffered its fifth consecutive weekly setback, shedding 430 points or 5.08%, to finish at 80.38 cents/lb. The May – July spread was effectively unchanged at 103. During the week, May’21 cotton contract cotton prices declined to the lowest level of 77.12 cents.
The May contract has now given up 1010 points over the last 4 weeks and has traded around 1800 points off its February high, when it went past 95 cents/lb. The Dec contract finished significantly lower on the week at 78.74 cents.
And there’s a basketful of reasons for the bearish move.
Weak crude oil and equity markets weighed over the fibre, while US currency has continued to strengthen, especially after recent Fed comments and economic growth projections.
The weekly data release from CFTC showed cotton spec funds were 59,191 contracts net long on 23rd March. That was down 462 contracts mostly via long liquidation. Long side positions decreased by 511 contracts; also, short side positions witnessed a decrease of 50 contracts. On the other hand, Trade reduced their long side position by 1,492 contracts and short was down by 3,906 contracts. The open interest for the week was registered at 285,758 contracts vs 289,396 contracts last week.
Having said so, the managed money aggregate net long position poses the risk of fast liquidation. Index fund rolling out of March commences next week, so no speculators are looking to build a hefty long position against the contract.
It is to be noted that on one-hand COVID-19 has increased demand for cotton masks and other medical supplies, it can’t be denied that most of the world is witnessing scale down cultural/religious gatherings, sporting, concert, and other similar events along with tourism/traveling in general. Also, the economic impact of a practical shutdown in industries like restaurants and hospitality, the world’s use of disposable income for textile goods remains substantially reduced. With new shutdowns being announced in Europe, this summer’s expected recovery is anything but sure shot.
The week started out with ICE cotton futures edged up in relatively low volume trade, buoyed by robust demand and a softer dollar on Monday. ICE Cotton contracts for May 21 closed at 84.62, down 6 points. On Thursday, however, there was a deep decline as ICE cotton futures tumbled over 4.5 percent to trade limit down, pressured by weak export sales data and a stronger dollar. The most active cotton contract on ICE Cotton Futures, May 21 closed at 78.44, down 400 points.
On Friday, ICE Cotton contracts for May 21 closed at 80.38, up 194 points, Jul 21 closed at 81.41, up 189 points, Dec 21 closed at 78.74, up 219 points. Cotton futures fell apart this week. Prices fell all five sessions.
Next week, the traders will focus on USDA’s prospective planting numbers on Wednesday. USDA pegged the 2021 crop at 12.0 million acres, but competition from other crops, plus this latest dive in prices, may mitigate that number. Traders will also likely keep a keen eye on weather forecasts as they make trading decisions.
Net export sales and shipments were lower as compared with the prior week at approximately 278,000 and 323,000 RBs, respectively. New crop sales were almost 70,000 RBs. Both sales and shipments were ahead of the average weekly pace required to realize the USDA’s target and remain ahead of the long-term average pace for this point in the season. Cancellations were significant at around 55K RBs and were mostly attributable to China.
During the week, sour sentiments between China and global majors like H&M, Nike or Adidas intensified, as China is boycotting foreign brands in retaliation for the shunning of Xinjiang cotton by many of these companies.
It is to be noted that after the latest week’s dismal price action on charts, markets experts are now more interested in going long.
Market analysts expect ICE cotton futures to rule between 70 and 90 cents per lb, in the next 6-12 weeks.
Michael Seery of Seery futures says, “Cotton prices are trading below their 20- and 100-day moving average. I believe prices have become too cheap as we topped out on February 25th at 95.68 dropping about 1,800 points in a matter of weeks from Friday's low..”
Seery adds, “..I believe this is just a retracement in a giant secular bullish trend which should continue due to massive quantitative easing from the U.S government.”
Having said so, support and resistance for NY Cotton lies at 75.83 cents and 83.55 cents per lb, respectively.
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