Weekly Report: Cotton Prices Drift Lower On Better Yield Prospect, Slow Buying

MUMBAI (Commoditiescontrol) - Domestic cotton markets have been volatile during the week ending 26th September, 2015 as buyers’ sentiment kept fluctuating on want of clarity in market movement.

As predicted in the last week’s report (19th September), cotton prices in north India commenced the current week on a higher note due to tight balance sheet and assumptions of 15-20 days delay in new crop arrivals. However, prices in forward deals witnessed slight softness by the middle of the week on assumptions of better yields after the revived rainfall at the fag end of the monsoon season.

As the week progressed, prices were seen softening more in north India compared to other zones due to visible rise in north new crop arrivals. Prices weakened Rs 90-100/maund (37.3kgs each) in northern markets, whereas in prices Gujarat saw weakness of Rs 1,100-1,300/candy (356kgs each), while the commodity in other states softened Rs 500-700/candy.





Major Factors Dampening Market Sentiment

1. Rising New Crop Supplies
New arrivals, especially, in north India, have capped upside in prices. Supplies are rising with each day. North Indian markets have registered estimated arrivals of around 10,000 bales of new crop this week. Markets participants are prepared for further correction in prices in days to come. The current smooth arrivals will ensure ample availability of the fibre in local markets in times to come. All India estimated arrivals as on 25th September, 2015 is at around 11,000 bales.

2. Revived Rains In Major Cotton Belts
Monsoon rains revived over almost all major cotton belts in the country, except for south Peninsula. Portions of Gujarat, Marathwada and Madhya Pradesh continued to receive revived monsoon showers this week. The revival in rainfall is considered to be beneficial for cotton crop in these major cotton growing areas. The fresh spell of monsoon showers is help boost yield by around 7-10 percent per hectare, according to traders.

After the recent spell of rain in Gujarat, there are assumptions that average production of last 2-3 years can be achieved this year, as per trade sources. With Indian Meteorological Department (IMD) predicting rain to continue till the first week of October, likeliness of increase in yield has been lifted. On the other hand, crop in various south regions require immediate rains. Karnataka registered 30-35 percent of less sowing this year due to deficient rain in the current monsoon season.

3.Increased Selling Pressure
Another major factor responsible for swinging sentiment is increased selling pressure. The soft commodity has been witnessing a lot of selling pressure from the last few sessions in the midst of rising apprehensions that the prices may correct further in sessions to come due to prevailing bearish trend in the commodity. A lot of stockists and private traders are actively liquidating their stocks at the current rates. Also, few of stockists are known to be reselling cotton purchased from Cotton Corporation of India (CCI) in local markets.

Many multi national companies (MNCs) also started selling cotton stocks tracking continuous fall in prices on New York exchange, Intercontinental Exchange (ICE) hit by forecast of better crop in the U.S. Also, crop in the U.S is considered substantially in good condition. Cotton futures on the exchange are trading lower than 60 cents from the last many sessions.

CCI’s regular E-auction continue to add burden on physical cotton business, as most of the mills and spinners have many options in front of them. The government nodal agency sold 1.53 lakh bales of cotton from its stockpile during this week out of 3.50 lakh bales offered. However, the cotton quantity put up for sale by the agency is decreasing day by day. It is now left with around 18 lakh bales of unsold cotton with it.





4. Dull Movement In Yarn Market
Yarn prices traded more or less steady this week, with 30 single carded in Ichalkaranji quoted in the range of Rs 146-155/kg and 30 carded weft offered in the range of Rs 130-135/kg in Coimbatore, while 30 carded in Gujarat was offered in the range of Rs 160-165/kg. But decent offtake were recorded at the current lower rates. Unless demand at domestic and export front is improved, yarn prices cannot see any revival.

5. Ambiguity In Next Crop Production
Yet another factor confusing market participants is various predictions of next crop production in the country. It is difficult to ascertain a particular production figure at present given the different versions in markets. As per the Central government’s first advance estimate for 2015/16 cotton production in the country, around 335 lakh bales (170kgs each) of cotton are pegged in the new season. On the other hand, the government procurement agency, CCI, estimates next year’s production at 350 lakh bales in 2015/16, slightly behind last year’s 355 lakh bales.

WEEKLY WEATHER UPDATE:

Rainfall Seen 68% Above Normal This Week Barring South Peninsula
The country as a whole received above normal rainfall of 68 percent during 17-23 September, 2015, as per the Indian Meteorological Department (IMD).

Almost all of the country received above rainfall activity during the week except for south Peninsula, where rainfall was 38 percent below long period average (LPA).

The northwest part of India received highest rainfall of 46.8mm against 16.6mm of normal rainfall, exceeding normal rainfall limit by 182 percent.

Central India recorded rainfall of 73.4mm against normal rainfall of 32.4mm, while east and northeast India recorded actual rainfall of 82.1mm against normal rainfall of 61.5mm.

For the country as a whole, cumulative rainfall during monsoon season has so far upto 23 September been 12 percent below LPA. Rainfall activity was less than normal in all the four broad homogeneous regions.

Long Range Forecast For Coming Weeks:
Normal to above normal rainfall is likely over Peninsular India till 03 October. Normal to above normal rainfall is also likely over northeastern states till 28 September. Near normal precipitation activity likely over Western Himalayan region till 08 October.






However, Cotton Sowing Area Shrinks 8.38% As On 24th Sept
Sowing area under cotton crop as on 24th September, 2015 narrowed down 8.38 percent to 115.20 lakh hectares compared to 125.75 lakh hectares in the corresponding period last year, as per the Central government data.





Weekly Technical Update

MCX Cotton Bales Weekly: Expect Lower Range To Be Tested
Exit long and sell on rise from 15920 to 16147 with a stop loss of 16250. Expect lower range of 15797-15447 to be tested. Overall movement may remain between 15450 and 16610 with a momentary bias to test the lower range. Click Here

NCDEX Kapas April’16 Weekly: Expect Lower Range To Be Tested
Exit long and sell on rise from 828-845 with a stop loss of 855. Expect lower range of 819-791 to be tested. Lower range can attract support therefore cover short position at 819 or below as the opportunity arises. Click Here

NCDEX CoC Weekly September: Minor Correction To Sideways Movement Likely
Exit long on rise from 1562 to 1584 as the opportunity arises. Expect lower range of 1545-1506 to be tested. Swing top appears to be in place. Correction to the DRV of 1488 is likely to be witnessed. Broadly for near term till 1624 is not crossed objective remains to exit long and take profits. Click Here

U.S. MARKET THROUGH THE WEEK
U.S cotton futures dropped to 7-½-months low this week ending Friday amid demand worries and pressure by macroeconomic. Benchmark December cotton contracts settled at 60.64 cents per pound.

The benchmark contract on Friday ended the week slightly higher after falling as low as 59.70 cents per pound, the weakest price for the second-month since early February, as commodities continued to decline and worries persisted over demand, particularly in top consumer China where economic growth is slowing.

Meanwhile, speculators sharply cut a bullish bet in cotton, reducing it by 15,866 lots to 11,278 lots, the CFTC data showed. That was their smallest net long position in fiber since they held a bearish bet in early 2015.

The only positive news this week was the strong U.S. weekly export sales report that showed jump of nearly 20 percent above the prior four week average, but slightly down from previous week.

SPECIAL COVERAGE THROUGH THE WEEK

India’s August Cotton Exports To China Down Nearly 80% On Year
India’s cotton exports to the world’s leading consumer, China in August, 2015, saw a slump of 79.59 percent to 3,456 tons compared 16,933 tons in the corresponding period last year, as per official customs data. During the first seven months of the current fiscal (January-August), India exported around 180,659 tons cotton to China, down 75.31 percent compared 731,793 last year same period.
(Click Here For Full Report).

Nearly 57% Of U.S. Cotton Crop Reach Bolls Opening Stage - USDA
The U.S. Department of Agriculture (USDA) in its weekly crop progress report for the week ended 20th September, 2015, stated that nearly 57 percent of U.S cotton crop reached bolls opening stage, which was almost similar to last year and below five year average of 61 percent. The report showed that 12 percent of the crop is very poor/poor compared to 13 percent a week ago.
(Click Here For Full Report).

U.S Net Upland Sales Of 2015/16 Cotton Down 6% At 90,800 RB
Net upland sales of 2015-16 U.S cotton crop totaled 90,800 Running Bales (RB), down 6 percent from the previous week but up 18 percent from the prior 4-week average. Increases were reported for Vietnam (22,200 RB, including 700 RB switched from Japan and decreases of 4,500 RB), Mexico (15,900 RB), Turkey (14,200 RB), Guatemala (12,300 RB), and China (10,600 RB).
(Click Here For Full Report).

Brazilian Cotton Prices Gain Support From Export Parity
Cotton prices in Brazil maintained upside trend helped by export parity even if buyers remained cautious in indulging in big deals. Most of the buyers continued hand-to-mouth buying tracking low activity pace in the Brazilian cotton industry. On the other hand, growers and traders are watching oscillations in the exchange rate and measuring up the volume needed to accomplish contracts for the domestic and international markets.
(Click Here For Full Report).


TOP STORIES THROUGH THE WEEK

Rains May Minimise Whitefly Attack On Cotton Crop
Predicted rains in days to come in Punjab is likely to minimise whitefly attack on cotton crop. With rains, whiteflies will start falling down from the crops, reducing the use of pesticides.

Rains In Gujarat Renew Cotton Production Estimate
Revived rains in Gujarat came as a saviour to cotton crop. Well distributed rains will now help kharif crops survive, as per farmers. Rains have resulted in 80 big and small dams, especially in Saurashtra, overflowing, thereby easing water availability for irrigation even if monsoon retreats now.

Texprocil Seeks Govt’s Support To Boost Exports
Cotton Textiles Export Promotion Council (Texprocil) sought government support to boost exports. In August, textile exports fell 7.39 percent to $863.18 million compared to $932.02 million same month in 2014. Chairman R.K. Dalmia urged govt to fast track the conclusion of FTAs with EU, Australia and Canada to remove trade barriers.

Haryana Cotton Ginners Seek Cut In Market Fee
Cotton ginners in Haryana are concerned about higher levies on fibre in the state. Ginners fear that cotton growers from the state may prefer selling their crop in neighbouring states of Punjab And Rajasthan. Accordingly, Growers Sought Reduction In Market Fee And Full Tax Refund, Saying Otherwise They Will Not Be Able To Get Raw Cotton For Ginning Purpose.

India 2015/16 Cotton Output Likely To Be Same As This Year - ICF
Indian Cotton Federation (ICF) estimates India’s 2015/16 cotton production at around 385 lakh bales, same as 2014/15. Rains in Gujarat and Maharashtra during last 10 days benefited crop. Also, prices are estimated to trade steady in next season.

CCI Estimates Higher Cotton Output Than Govt
As per CCI Chairman B.K. Mishra, India may see cotton output of 350 lakh bales (170kgs) in 2015/16, slightly behind last year’s 355 lakh bales, report new agencies. But government’s first advance estimate pegs output at 335 lakh bales. CCI believes revived monsoon rain will help crop in rain-fed areas. CCI procurement may be lower this year due to higher cotton seed prices and export prospect to Vietnam and Bangladesh, Chairman said. Government is mulling replacing physical procurement of cotton at support price with ‘deficiency price payment’ system. Under such system, farmers will be paid the difference between the market price and a predetermined threshold.

Cotton Forecaster Raises 2015/16 Inventories Forecast On Weaker Demand
Industry analysts at Cotton Outlook (Cotlook) in a monthly forecast said that world cotton inventories will not fall as much as previously expected due to weak demand and higher carry forward stock.

Revived Monsoon To Boost Rabi Crop: Radha Mohan Singh
The end season revival of monsoon rains across north, east, west and central regions of the country will help rabi crops planting and production to register an increase over last year, agriculture minister Radha Mohan Singh has said, reports news agency. "The monsoon deficit, which is at 14 per cent now, is expected to narrow down as there are good rains in most parts of the country since the past few days. This will help in crop planting," the minister said at a rabi conference in New Delhi on Tuesday.

OUTLOOK FOR NEXT WEEK:
We at commoditiescontrol.com see easy tone in cotton during the course of next week due to gradual rise in new crop supplies. Weak prices in international markets will also halt rise in domestic cotton prices.Despite decent lifting of yarn at the current rates, yarn prices are comparatively negative, which would continue to add pressure on overall cotton business.

(By Commoditiescontrol Bureau; +91-22-40015532)