Mumbai, 30 Jul (Commoditiescontrol): Cotton experienced a dream run on the futures exchanges with prices maintaining an upward march till Wednesday, supported by hot weather conditions in key growing region Texas amid supply concerns. However, the natural fiber took a sharp downward turn with weak export sales raising questions over demand prospect while weakening of U.S. dollar post Federal Reserve raising interest rates by 25 bps and expressing fairly balanced view denting sentiments. Technical patterns, too, supported taking some profits off the table.
On Friday, ICE Cotton contracts for October ended at 84.26 cents, down 12 cents. December closed at 84.41 cents, 16 cents lower. March settled at 84.45 cents, losing 10 cents. For the week, cotton futures ended marginally lower. The front-month contracts net decline for the week was 0.26%.
The December contract scaled its highest since Jan. 26 earlier on Thursday.
The near-month active contracts have flipped into contango - a situation where cash or near-end month quotes at a discount over far-end contracts. All contracts have also slipped below the psychologically important 85 cents mark.
A combination of the dollar's advance, weak exports data and crop progress data dented the cotton's recent rally.
Crop Progress data from Monday showed 78% of the cotton crop was squaring and 37% was setting bolls as of July 23. That was 1% point and 2ppts behind average respectively. NASS rated the crop 24% P/VP and 46% G/E for a Brugler500 score of 321. That was up from 312 last week as the Kansas region improved a sharp 30 points.
On the cotton consumption/demand front the data continues to provide a sluggish scenario. The U.S. Department of Agriculture's (USDA) weekly export sales report showed net sales reductions of 18,700 RB for 2022/2023 were down noticeably from the previous week and from the prior four-week average.
"Exports of 2,100 RB were down 15% from the previous week and 64% from the prior four-week average," the USDA report added.
Though the report indicated old crop cotton bookings were net negative, new crop upland sales were 80,600 RB, besides weekly Shipments were 197,800 RB. Cotton export sales commitments are 11% smaller than a year ago. They are 115% of USDA’s updated WASDE forecast (normally 115%).
On the other hand, the USDA’s weekly Cotton Market Review had 12,456 bales sold at spot for the week, averaging 81.79 cents/lb. The season’s total spot sales reached 775,610 bales compared to 1.625 million last year.
The online cotton trading platform, The Seam, reported 2,544 bales were sold for an average price of 76.21 cents. The Cotlook A Index was another 80 points higher to 98 cents/lb on july 27. The AWP was raised 356 points to 69.74 cents/lb.
On the weather front there are still signs of a dry weather climate. NOAA’s updated 7-day QPF has Texas, Oklahoma, Kansas, Arizona, Los Angeles, and Mississippi all remaining dry for another week. Georgia, Alabama, and the Carolinas will see some limited precipitation of less than 1/2”.
The weekly Commitment of Traders (CoT) update had cotton spec traders switching shorts to longs during the week that ended july 28. The 10,500 fewer shorts and 13,400 new longs extended the groups net long to 29,284 contracts. Commercial cotton traders added 25,800 new short hedges which left the group 86,428 contracts net short.
As observed in the previous reports, weather remains a key factor for the cotton complex. The weather in the U.S. is certainly friendly to cotton prices, 60% of the Texas crop is non-irrigated, and have been suffering with triple-digit temperatures. Latest weather update forecasts moderation and even some below normal temperatures in growing regions. Traders will also focus on updates on the geopolitical front. Russia's latest aggression in the Black Sea region and retaliatory action by Ukraine. The outlook remains fairly bearish amid weak demand while weather concerns may provide boute of support in between. A narrow range movement expected in the coming week.
For Monday, support for the July Cotton contract is at 83.71 cents and 83.15 cents, with resistance at 85.25 cents and 86.23 cents.
(By Commoditiescontrol Bureau: 09820130172)
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