Mumbai, 1 Jan (Commoditiescontrol): Cotton's defiant mode has helped the complex fare well on the last week of 2023. Small crop and solid export demand came in handy to gain momentum while reversing the falling trend, but couldn't break the 90 cent level.
On Friday, ICE cotton futures ended higher, rallying near two-week high, as traders covered their positions ahead of a long holiday weekend, while a weaker dollar lent further support. However, the natural fibre recorded its second consecutive yearly decline.
ICE Cotton contracts for Mar closed at 81.00 cents, 5 points higher. May settled at 82.15 cents, adding 25 points. Jul ended 41 points strong at 82.83 cents.
Cotton futures closed the last trading day of 2023 with 5 to 62 point gains, led by the new crop contracts. The March contract was at a net weekly 124 point gain or or 1.55% for the week, and finished with a net 94 point gain for the month of Dec. The new Dec contract closed with a net 2 cent gain for the year, from 83.4 cents to 79.36 cents.
The Dollar Index continued the downtrend on Wednesday, printing lows not seen since July. The March contract recorded a net weekly drop of 17 point or 0.21%. Limiting gains, oil prices slipped as investors monitored developments in the Red Sea. Lower oil prices tend to subdue sentiment in cotton markets since they make polyester, a cotton substitute, less expensive.
The Friday's delayed Export Sales data was positive, as 369,857 RB were sold for export in the week that ended on December 21. That was a 7-week high in bookings and came with the help of China reemerging at 271,209 RB in purchases. Shipments were at a 24-week high at 230,981 RB as the seasonal pickup in exports continues. Cotton export sales commitments for 23/24 are now 8.492 million RB, which is 74% of USDA’s current cotton export forecast. That trails the 78% average pace for this point in the MY.
Meanwhile, the updated Drought Monitor showed Texas improved slightly from last week but there is still D3-D4 level drought within nearly every state in the cotton belt. Last year Kansas and Oklahoma were worse off at this time, though the Southeast is 11.8% points more in drought including 2.5% points more in D3-D4.
Reports from Mato Grosso show second cotton planting is underway. Some farmers have reportedly abandoned the soybeans to begin cotton planting.
Weekly FAS data had 369,857 RBs of cotton sold during the week that ended Dec 29. The Seam reported 13,493 bales of cotton was sold online on Dec 27 with an average gross price of 74.09 cents/lb. The Cotlook A Index for Dec 27 was a penny stronger at 90.40 cents/lb. The AWP was 36 points higher for the week at 64.16 cents/lb.
Cotton prices were weighed down, in recent times, by sombre weekly export sales data from the U.S Department of Agriculture's (USDA) has already highlighted weak global demand for cotton. Trading volume have shrunk as well, since we are at the end of year, traders said. The second-crop cotton represents 85% of the nation’s total cotton.
Brazil’s CONAB has cotton production at 7.429 MMT, a 3.5% drop from last year, and USDA’s WAOB is forecasting 14.56m bales output, a 24% increase from the year prior.
Last week, an update by ABARES suggested a 44% decrease on year for cotton area in Queensland (288,000 MT production) Australia and a 20% drop for New South Wales area (619,000 MT production) via the December update citing expected El Nino dryness.
USDA’s Crop Explorer’s WMO shows cotton area thus far remains above the seasonal average. ABARES has yields above trend, citing a larger portion of the crop in irrigation.
The weekly Commitment of Traders report showed managed money funds closed 3,600 longs and added 1,500 new shorts in cotton during the week that ended Dec 26. That flipped the group to net short with a 5,100 contract swing to 3,800 contracts net short. Commercial hedgers closed 3,000 shorts, reducing the group’s net short to 39,776 contracts.
Of late, analysts and traders have highlighted that U.S. cotton prices are unlikely to gain much traction this year despite lesser output as trade tensions have been pushing key buyer China to other cotton producers like Brazil and Australia.
Given the reduction in speculative long as well as short bets and analysts observations, we maintain cautious stance on the natural fiber. Lack of clear participation from the Chinese traders and deepening of crisis in the middle-east is crucial for cotton to stage reversal.
For Tuesday, support for the March Cotton contract is at 80.38 cents and 79.75 cents, with resistance at 81.69 cents and 82.37 cents.
(By Commoditiescontrol Bureau: 09820130172)
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