Weekly: ICE Cotton May Trade In Tight Range Next Week

MUMBAI (Commoditiescontrol) – U.S. cotton prices this week surrendered most of the gain posted a week ago amid profit booking, poor export sales report, concern about global financial market. Strong dollar too has weighed on cotton prices.

ICE December cotton dropped by 0.6%, or 0.46 cents at 77.92 cents per pound during the week. The contract traded within a range of 77.33 to 79.16 cents per pound. Daily volume in December contract during the week averaged at 13,298 lots, down 24.12% from 17,526 lots a week ago. However open interest fell only by 0.6% week-on-week at 137,007 lots.

Cotton prices earlier last week notched gain of nearly 3% mainly on crop damage worries due to Hurricane Michael.

The Hurricane is likely to have damaged around 1 million bales (480lb) or nearly 13 lakh bales of 170kg of cotton crop in Georgia, Albama and Florida.

US cotton production has clearly suffered a big setback in both quantity and quality due to the two hurricanes in the Southeast and the persistently rainy weather in other parts of the cotton belt.

However, quality has suffered greatly as well, and we don’t expect many premium grades to come out of the Southeast this season. It has also been quite wet during harvest in pockets of the Delta and South Texas, and most recently we had to deal with a freeze in the Northern Texas Panhandle, Plexus cotton said in a note.

In short, the US is currently looking at a crop of around 18.8-19.0 million bales with lower than average quality, according to plexus.

USDA in October release estimated U.S cotton crop at 19.76 U.S bales (252 lakh bales of 170kg) up from 16.68 million bales (251 lakh bales) in September. It seems that USDA had not consider the possible damage caused by Hurricane Michael and it is likely to revise its output number in November release.

At present supply is not major concern and its demand need to be watched out closely amid global uncertainty whether its trade war between two largest economies U.S and China followed by sanction on Iran and rising escalation between U.S and Saudi Arabia on Khashoggi issue. There are other key events also looming over global financial market i.e. Brexit.

Italy's rule-defying budget plan is fast-becoming a key concern for global markets, as investors monitor the growing likelihood of a showdown between the EU and Rome's populist government.

US Cotton Crop Deteriorates After Hurricane Michael (Full Report)

WEEKLY EXPORT SALES
For 2018-19 (Aug-Jul), U.S weekly net export sales for the week ended Oct 11 dropped 66% week-on-week at 37,612 Running Bales (RBs), with shipment easing as much as 32% week-on-week at 141,657 RBs.

Cancellation was remained on higher side at 33,000 RBs, but down from 85,000 RBs a week ago. Cancellations of around 19,000 RBs was attributed to China.

Total shipment so far for 2018-19 stood at 1.84 million bales (480lb), which is 11.4% of USDA target of 15.5 million bales. Outstanding positions now stands at 7.85 million bales with total commitment for the season have reached at 9.69 million bales.

The pace of net export sales and shipment is very slow, and it will be difficult for U.S exporters to achieve the target pegged by USDA with concern about quality.

CFTC ON CALL SALES
On call sales dropped for the fourth straight week (Oct 12) at 13.65 million bales, while producers on call purchases increased to 4.54 million bales. Mill on call sales commitment against December contract dropped at 2.34 million bales and producers purchases also fell at 1.83 million bales. The on-call sales are somewhat supportive as sales number are still higher.

CFTC COT REPORT
The latest CFTC Commitment of Traders (COT) report for the week ended Oct 16 revealed that trade have cut bearish bets by 2.7% week-on-week at 11.44 million bales, whereas index funds increased net bullish positions by 0.3% at 4.97 million bales. Other reportable net long position cut by 15.1% at 0.78 million bales.

The latest COT report is supportive for ICE cotton as trade shorts are covering bearish bets with index funds are raising bullish bets.

Conclusion
All technical and fundamental data at one place suggests uncertainty ahead mainly due to worries over threat of economic slowdown in global market, particularly in emerging markets. ICE cotton is expected to trade in a tight range with volatility till the economic picture gets clear. Long-term picture will be clear only after the next USDA supply-demand report (November estimates) and till then it's better to keep fingers crossed.

TECHNICAL IDEAS
ICE COTTON DECEMBER - Further Rise Is Above 79.22 Closing

Contrarian traders long on Cotton need to maintain the stop loss at 7537. Further rise is above 79.16.

Support will be at 77.11-75.28.

Resistance will be at 78.14-78.94.



(By Commoditiescontrol Bureau; +91-22-40015533)