Weekly: ICE Cotton Sinks On Bearish USDA Report

MUMBAI (Commoditiescontrol) – ICE cotton futures were in a narrow range of 86.76 to 89.98 cents per pound since last couple of weeks but went down sharply after the release of the bearish USDA data, which sent ICE December cotton contract to 85.23 cents per pound, lowest level July 12, 2018.

USDA in its August supply-demand report forecast higher US beginning stocks, production, exports, and ending stocks relative to last month. Production estimate for the 2018 crop raised 4% to 19.2 million bales, on this season’s first survey-based production forecast.

Although WASDE-580-5 NASS’s survey indicates higher abandonment, but a higher average yield compared to last month’s expectations prompted USDA to increase forecast about production.

Beginning stocks are raised 400,000 bales due to lower-than-expected 2017-18 exports and domestic consumption, and 2018-19 exports are 500,000 bales higher, at 15.5 million bales. Ending stocks are 600,000 bales higher this month.

The midpoint of the marketing-year-average price is unchanged from last month, at 75 cents per pound.

Projected world 2018-19 ending stocks are down 1% this month, due to a combination of lower beginning stocks and higher consumption offsetting higher production. Beginning stocks are reduced 450,000 bales, reflecting both lower production and higher consumption estimates for 2017-18.

Production in 2018-19 is increased 400,000 bales, with higher expected crops in the United States, Argentina, and Turkey offsetting reduced crops in Uzbekistan, Australia, and Turkmenistan. Consumption is raised 660,000 bales, led by a 300,000-bale increase for Pakistan, with smaller increases in Indonesia, Turkey, and other countries.

VOLUME & OPEN INTEREST
The volume daily volume during week in December contract has shown detrimental, but same was not in case of March contract as volume and open interest recorded positive growth, indicating that some longs are adjusting themselves in March contract.

Daily volume in December contract this week averaged mostly down at 17,516 lots versus 17,645 lots last week. Daily open interest this week averaged lower at 172,620 lots versus 176,412 lots a week ago.

US WEEKLY EXPORT SALES
US exports sales of 276,200 running bales for all three marketing years were once again quite decent last week. Shipments picked up a bit at 315,900 running bales. The final export tally for MY 2017-18 now stands at 15.9 million bales (480lb each), which would be 0.3 million bales short of the latest USDA number 16.20 million bales.

There were about 1.6 million bales carried into the current marketing year 2018-19, which brings total commitments for the 2018-19-season to 8.7 million bales. That’s the highest amount of export commitments at the beginning of any season. Additionally, there are already around 1.35 million bales sold for the 2019-20 marketing year.

ON CALL REPORT
Total unfixed on call sales for all contracts as on August 3 increased week-on-week at 15.65 million bales. The unfixed-on calls sales for December contracts dropped, but were offset by sharp increase in July 2019 contract. The total on call sales in all contracts is substantially higher from last year’s level of 11.25 million bales.

CFTC COT REPORT
The latest COT report revealed that trade shorts have reduced net short positions week-on-week by 1.8% to 16.07 million bales, whereas Index fund have cut net long positions by 2.7% to 8.05 million bales. However, speculators have kept their bullish stance as net long positions increased this week by 0.7% to 1.88 million bales. Bulls are likely to cut their positions after bearish report released by the USDA. For cotton market negative news are more than positive and thus some more selling on ICE futures can’t be ruled out ahead.

CONCLUSION
ICE December cotton has dropped to nearly 1-month low and now market players are eying the important support of 82 cents per pound. Higher crop projection for U.S. for MY 2018-19 with intensifying trade war between U.S. and China is likely to make bulls nervous, while bears are likely to dominate. However, one should keep a close eye on unfixed on call sales, which are at 15.6 million bales (5.2 million bales in December alone) and may provide reasons for bulls to wait and watch.

TECHNICAL IDEAS: ICE COTTON NO. 2 : DECEMBER CONTRACT: EXIT LONG & SELL

Exit long and sell on rise from 85.23-87.90 with a stop loss of 90.

Resistance will be at 86.5-87.90.

Lower range for the week can be 83.83-79.76.



(By Commoditiescontrol Bureau; +91-22-40015533)