Mumbai, 20 May (Commoditiescontrol): Cotton prices rebounded this week, having settled the previous week lower, as speculative trading activity received a boost from low prices, softer dollar and hopes of the U.S. law makers resolving debt ceiling issue. Apparently, ICE Cotton futures ended higher on Friday, although they remain off three month peak hit during the day.
Apart from the retreat of dollar, prices breaking off stiff resistance on chart helped boost investor sentiment.
ICE Cotton contracts for July 2023 finished at 86.72 cents up 0.06 and December 2023 ended at 83.89, 0.17 higher. Friday's estimated volume was 43,020 contracts.
For the week, July cotton was up 6.19 cents, for the month, it was plus 5.92 cents, and thus far for the year, July is higher 3.34. This was the best week for Cotton complex since late November. There are 28 days till the expiration of July options. The contract will enter delivery on June 26.
Analysts attributed part of the gains to a break above technical resistance around the 87-cent mark. However, prices were now approaching "overbought" levels.
Trading interest in the natural fiber was also bolstered by weaker dollar, which made greenback-priced cotton more attractive, especially for overseas buyers. Further, gains in oil prices made polyester, the cotton substitute, more expensive.
At weather front, the Thursday's weekly U.S. Drought Monitor update suggested improvement in pockets of West Texas - the major growing region. The 1- to 5- day forecast calls for rains of up to two inches across portions of Oklahoma, with smaller amounts (0.25-0.75 inches) for West Texas. Meanwhile, the extended 6- to 10- and the 8- to 14-day outlooks indicate above-normal chances of rain in both locales.
Favourable weather pattern has yielded positive result in crop activity, but still not strong enough to cross last years pace. Weekly Crop Progress data indicated 35% of the US cotton crop was planted by May 14, 1% behind the 36% average pace.
As regards export sales data they continue to show the impact of low demand due to recessionary concerns. Thursday morning’s Export Sales report showed bookings for old crop cotton at a 4-week low of 132,443 RB during the week that ended on May 11. New crop was shown at 28,077 RB. Weekly Shipments were slightly higher than the week prior at 332,691 running bales (RB). USDA’s weekly Cotton Market Review showed 38,853 bales were sold this week at an average price of 80.57 cents. The season’s full sales were 672,000 bales, compared to 1.614 million last year.
Cotton export sales commitments are now 15% smaller than a year ago. Compared to the USDA projection, they are still on pace, at 110% of USDA’s new WASDE forecast. That matches the 5-year average pace.
Representing this week's firm tone, the May 18 Cotlook A Index was 280 points higher to 97.85 cents/lb. The AWP for cotton was another 13 points higher to 68.10 cents/lb. It will be interesting to no whether the upward momentum gathered in recent time will continue or not. In the last two weeks the prices have strengthened led by demand revival hope and tight availability prospect.
The trend encouraged traders to stay positive. Friday’s Commitment of Traders report showed managed money had reduced their net short by 1,000 contracts to 12,764 through the week that ended May 16. The commercials were adding hedges, though the 12,585 new contracts only reduced the group’s net short by 937 to 36,095.
For Monday, support for the July Cotton contract is at 85.91 cents and 85.09 cents, with resistance at 87.76 cents and 88.79 cents.
In the coming week, lot of attention will given to deliberation about U.S. debt ceiling. Though, the congress walked away without forming consensus this Friday, they may comeback next week determined to resolve the issue and probably avoid the country from defaulting debt payment. That would have severe repercussion on the global economy. Staying light on trading will be a perfect strategy to weed out uncertainty.
On Monday, morning Export Inspections data will be released, with the NASS Crop Progress report in the afternoon. Thursday morning is the weekly Export Sales report release per usual.
(By Commoditiescontrol Bureau: 09820130172)
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