Mumbai, 28 May (Commoditiescontrol): Two factors largely dominated the week gone by were the debt ceiling deliberation in the U.S. and weather pattern across growing region. Under their influence, the broader markets kept sliding lower. Some semblence was restoed on Friday with prospect of US congress reaching a consensus has rejuvenated market participation.
ICE cotton futures settled higher, snapping their four straight session losses. But, the natural fiber went on to post a weekly loss.
Cotton complex cheered the news coming from the white house. The U.S. House Speaker Kevin McCarthy said that progress had been made in negotiations on Thursday evening aimed at securing a deal on raising the U.S. government's $31.4 trillion debt ceiling.
Apart from the Congress hammering out differences on raising debt ceiling, the cotton complex also benefited from technical buying ahead of the Memorial Day weekend. Further, the U.S. dollar turning lower on the day, was a cherry on cake. Softer dollar made cotton buying cheaper for non-dollar holders.
Let's consider the second factor: the weather. There is forecast of more rain in Texas that are still too soaked to finish planting. However, that did little to cheer the planting activity.
ICE Cotton contracts for July 2023 finished at 83.35 cents, up 3.23 cents and December ended at 80.54 cents, up 2.04 cents. Friday’s round of trading lifted the board back up by 2.5% to 4% across the front months.
For July, the 323 point rally into Memorial Day weekend only limited the week’s net move to a 337 point loss. Dec cotton was also 335 points weaker from Friday to Friday. The new crop contract is sitting at a net 65 point loss for the month of May. Data showed open interest for the December contract was higher than that of July.
Cotton prices have lost nearly 6% so far this week, having dropped to their lowest since May 12 on Thursday as rains in top growing state Texas weighed on the market.
"Rains were weighing on prices earlier in the week and it might be keeping cotton prices from rallying as much as they might given the other news," analysts said.
Monday’s USDA Crop Progress report showed 45% of the US cotton crop was planted by May 21, now 5% behind the 50% average pace. The weekly Export Sales report indicated bookings for old crop cotton at a 5-week low of 131,245 RB during the week that ended on May 18. New crop was shown at 84,304 RB, the second largest forward book of the MY. Weekly Shipments backed off by 19.22% from the week prior to 268,748 running bales (RB).
Elsewhere, Texas NASS reported that as of May 22, cotton planting was 35% complete, down 8 percentage points from the five-year average.
The next crop progress report will be delayed until Tuesday, May 30, 3 p.m.
Cotton export sales commitments are now 14% smaller than a year ago. Compared to the USDA projection, they are still within range of the average pace (111%), at 100% of USDA’s new WASDE forecast.
USDA’s weekly Cotton Market Review showed 20,376 bales were sold this week at an average price of 79.75 cents.
The Cotlook A Index was 91.95 cents on May 25 after another 250 point drop. The USDA’s FSA raised the AWP for cotton by 98 points to 69.80 cents/lb. ICE certified stocks were 63 bales on May 25.
The weekly CoT report showed short covering from the cotton spec traders during the week that ended May 23. That flipped the group back to net long, via a 20,744 contract swing to 7,980 contracts. Commercial hedgers were adding shorts, with a 22,000 contract stronger net short of 58,131.
Meanwhile, India is likely to witness a normal monsoon season in 2023 despite the likely emergence of the El Nino weather phenomenon. But summer rains are "most likely to be" below normal over the north-western parts of the country, state-run weather office said on Friday.
Next week will see truncated trading days. Markets will be closed on Monday in observation of Memorial Day.
Considering the spec short-covering and debt ceiling talks progress, markets may raise their attempt to corner bears, but as long as weather condition is in play, it is unconvincing to take a bet on sharp price upmove. Traders should staying light on position and wait for clear technical signals before creating a new position on either side.
For Monday, support for the July Cotton contract is at 81.06 cents and 78.77 cents, with resistance at 84.69 cents and 86.03 cents.
(By Commoditiescontrol Bureau: 09820130172)
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