Mumbai, 8 Jul (Commoditiescontrol): Cotton prices continue to feel the pressure from improving weather conditions in the growing region, especially in the United States, amid waning demand from consuming nations, particularly China, that reflects in weak export sales. As a result, the natural fibre has posted losses during the truncated week to July 7th, that's the third straight week of fall in a row. Though, cotton complex managed to climb above the crucial level of 80 cents on Friday, drawing support from weak dollar, sluggish export sales and falls across wider financial and commodity markets. A weaker dollar makes cotton cheaper for overseas buyers.
ICE Cotton contracts for December ended at 81.17 cents, up 129 cents. March closed at 80.98 cents, 119 cents higher. May settled at 81.04 cents, adding 108 cents.
Cotton December ended the week with a net gain of 80 points. This third straight back-to-back week of rise for natural fibre. Remember, Dec cotton flipped to a net 90 point gain for the month of June.
Spot July remains in its notice period. Friday there were no deliveries for the contract. However, 171 notices have been tendered. The contract expired on July 7.
In the recent past, cotton prices experienced a relentless pressure from the favourable weather conditions in key cotton-growing areas, weak equity markets and concerns about lower demand from top buyer China. The US dollar surrendering some of its strength against a basket of currencies, probably after milder than expected NFP data, has rewarded long buyers in the end with cotton prices reclaiming crucial levels, traders said. The dollar index was down 0.9%, making the natural fiber more appealing to other currency holders.
Talking about weather, there is marked improvement in cotton growing regions, particularly Texas. The six- to 10-day forecast for West Texas calls near-normal temperatures and above-normal rainfall. The extended eight- to 14-day outlook indicates slightly above-normal temperatures with normal precipitation. That should help boost crops.
Interestingly, Monday's weekly crop progress report by the U.S. Department of Agriculture (USDA), showed 42% of the country's cotton was planted in the week ended July 2, compared with 28% a week ago. The agency reported 42% of the cotton crop was squaring as of Jul 2. That matches the average pace. The weekly update had 11% setting bolls, up from 5% last week and also matching the average.
However, Cotton conditions worsened 4 points on the Brugler500 Index to 327. Texas, and Oklahoma were down the most, while South Carolina improved 16 points from last week.
Another factor contributing to cotton's sluggishness was China's domestic services report, which showed expansion but at a slower pace, indicating that demand for cotton products could decline. China's services activity expanded at the slowest pace in five months in June, a private-sector survey showed on Wednesday, as weakening demand weighed on post-pandemic recovery momentum.
Poor China demand expectations are already impacting U.S. export sales, which remains a big concern. The USDA weekly export sales report showed net sales of 109,200 running bales (RB) for 2022/2023, down 13% from the previous week and 42% from the prior 4-week average. "Exports of 4,200 RB were down 72% from the previous week and 46% from the prior 4-week average," the USDA report added.
New crop bookings were 130,399 RBs for the week. That compares to 158,000 RBs last week and 382,000 from the same week last year. New crop commitments were at 2.3m RBs, or half of last year’s volume.
Meanwhile, the USDA’s weekly cotton market review showed the 6,034 bales sold during the week averaged 72.69 cents. The Cotlook A Index was steady at 92.65 cents/lb on July 5. The AWP is 65.50 cents/lb.
The Mill consumption figures are discouraging as well. The monthly Cotton Systems data from NASS showed 262 RBs of cotton were consumed in May. That was the lowest reported month on record, overtaking 463 RBs from Dec ’22. Cotton stocks were looser to 2,857 RBs from 2,800 last month.
Smart money was quick to sense the opportunity and, hence, have been staying on the short side. As per the weekly Commitment of Traders report, spec traders were lifting shorts in cotton during the week that ended July 3. That left the group with an 8,257 contract net short. The commercial hedgers added shorts during the week for a 50,974 contract net short.
July 2023 contract ceases to exist following the expiry on Friday, the focus now shifts to December contract. Its recent price recovery suggests that the traders are hoping for a fruitful outcome from the U.S. Treasury Secretary Janet Yellen's four-day visit to China. Both countries may iron out differences between the world's two largest economies, which may help boost trade ties.
On the technical front, certain momentum indicators have fallen to their lowest levels since November 2022. Such negativity encourages traders to sell rallies.
For Monday, support for the July Cotton contract is at 80.00 cents and 78.84 cents, with resistance at 81.88 cents and 82.60 cents.
(By Commoditiescontrol Bureau: 09820130172)
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