Mumbai, 22 Jul (Commoditiescontrol): Among agriculture commodities, cotton prices continue to tick higher during the week to July 21 as dry weather conditions seen impacting the crop progress. However, sluggish demand from China and other top consumers alongside firm dollar have kept a lid on the prices of natural fiber.
Friday's session, on the other hand, was an exceptional case wherein ICE cotton futures ended mixed, with near month contract retreating from six-week high, while far-end futures settled up drawing support from growing supply concerns due to hot and dry weather in the key growing regions. As mentioned above, the uptick in the dollar applied breads on cotton prices. Strong dollar makes cotton dearer for overseas buyers.
Apparently, ICE Cotton contracts for October ended at 85.08 cents, down 85 cents. December closed at 84.48 cents, 17 cents higher. March settled at 84.43 cents, adding 13 cents. December contract has gained 3.5% so far this week.
All three near-month active contracts have returned to backwardation - a situation were cash or near-end month quotes at a premium over far-end contracts - while staying above psychologically important 80 cents mark.
The dollar rose to 1-week high against its rivals, making cotton more expensive for other currency. Stronger oil prices making polyester, a cotton substitute, more expensive. Hence, supporting was crude oil prices.
On weather front, countries around the world from China to the United States are battling heatwaves, with the onset of the climate phenomenon El Nino helping push temperatures higher.
A heat wave expected over the next week and weaker crop condition likely to extend support. Due to dry weather conditions in United States, a weekly Crop Progress data indicated 25% of the cotton crop setting bolls, 1% behind normal. Condition ratings were down 3% at 45% gd/ex. The Brugler500 was down 9 points to 312, as the 3% shifted from good to very poor. That's one positive indicator for cotton complex.
However, the sluggish cotton demand remains a big concerns. According to the U.S. Department of Agriculture's (USDA) export sales report released on Thursday, old crop cotton bookings were just 67,050 RB, with new crop sales down improving to 86,134 RB. Shipments ticked back higher to 233,063 running bales (RB). Meanwhile, the cotton export sales commitments are 11% smaller than a year ago. They are 115% of USDA’s forecast, on pace with the average. The primary buyers were China at 32,400 RB and Vietnam at 16,000 RB.
Recent WASDE report projected the global consumption 550,000 bales lower as reductions for China, Bangladesh, Turkey and Vietnam more than offset improved prospects for Pakistan.
The Cotlook A Index for July 20 was 135 points stronger to 93.80 cents/lb. The Seam reported 2,455 bales were sold online on July 19 for an average gross price of 74.29 cents/lb. The AWP was 124 points stronger to 66.18 cents as of Thursday afternoon.
The Commitment of Traders (CoT) data showed the funds with a 5,397 contract net long in cotton as of july 18. That was a 3,300 contract stronger net long for the week, given short covering. Commercial cotton traders were 4,500 contracts more net short for a 64,158 contract net short hedge.
Signs of stress in crop condition ratings are keeping market fairly supported. Traders have already factored in key buyer China releasing cotton from state reserves in late July. That should weigh on cotton prices in the near term. However, weather conditions heating up the US western plains, which is not good for the production potential, and some improvement in demand are currently supporting bullish case for cotton.
For Monday, support for the July Cotton contract is at 83.21 cents and 81.93 cents, with resistance at 85.78 cents and 87.07 cents.
(By Commoditiescontrol Bureau: 09820130172)
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