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ICE Cotton Futures Surge Over 3% Amid Short Squeeze and Export Anticipation

23 May 2024 8:39 am
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Mumbai, 23 May (Commoditiescontrol): ICE cotton futures surged more than 3% on Wednesday, reaching the upper trading limit as traders covered short positions in anticipation of Thursday's weekly federal export sales report.

The July cotton contract rose by 300 points to close at 79.38 cents per pound. December contracts increased by 200 points to 77.28 cents per pound, and March contracts climbed 194 points to settle at 78.83 cents per pound. This follows a 1.7% decline in the July contract last week.

An analyst noted that the gradual buyback of short positions culminated in a minor short squeeze as weaker speculators exited the market. A short squeeze occurs when rising prices force short sellers to buy back shares to limit losses, driving prices up further.

Despite these gains, external market factors were not supportive, with crude oil down by $1.32 and the US dollar index up by 289 points.

The USDA's National Agricultural Statistics Service (NASS) reported that 44% of the US cotton crop had been planted by Sunday, an 11% increase from the previous week. This is in line with the five-year average and 2% ahead of last year. Texas lagged behind its five-year average by 2% at 37%, while Georgia was 3% behind at 47%.

Traders are eagerly awaiting the USDA's weekly export sales report on Thursday for further insights into demand. Last week's report indicated net sales of 156,500 running bales (RB) for 2023/2024, a 38% decrease from the previous week, with exports down 4% to 238,800 RB.

Globally, the USDA's World Agricultural Outlook Board (WAOB) reduced its carryout estimates for the 2023/24 cotton season by 2.6 million bales to 80.48 million due to a smaller carry-in. However, the WAOB projected an increase in 2024/25 ending stocks by 2.53 million bales to 83.01 million.

ICE certified cotton stocks increased by 913 bales on May 21 to 191,566 bales. The Cotlook A Index remained unchanged at 85.60 cents per pound, while the AWP fell by 18 points to 59.46 cents last week and will be updated on Thursday.

Large managed money speculators added 1,615 contracts to their net long position as of May 14 but remained net short by 15,314 contracts, the largest net short position in nearly 11 months. Traders are watching technical support levels for the July cotton contract at 77.28 and 75.18 cents, with resistance at 80.43 and 81.48 cents.

Despite periodic rallies, the cotton market continues to face pressure from weak demand and profit-taking. Market participants are also monitoring weather conditions and planting progress for future price directions, alongside the potential impact of President Joe Biden's recent tariff increases on Chinese imports.

(By Commoditiescontrol Bureau: 09820130172)

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