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Weekly: ICE Cotton Marks 2nd Weekly Gain on China Tariffs Waiver, Trade Talk Hope

8 Dec 2019 8:21 pm
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MUMBAI (commoditiescontrol)-Cotton futures managed to settle positive for the second week in a row, lifted by upbeat comments from the U.S. President Donald Trump on trade talks with China and the latter proposing to waive off tariffs on soybeans and pork.

The ICE most active March contract closed 64 points up at 66 cents/lb for the week while May 20 contract closed at 66.85 cents/lb with a gain of 46 points. The March-May spread was at 85 points. Spot December cotton expired Friday at 65.00 cents, which was seen as a decent technical close.

In spot markets the Seam’s G2B platform traded over 30,000 bales over the past five trading days. The average price received by producers was 57.15 cents per pound, down 176 points from the previous week’s average. The average premium over the CCC loan was 5.77 cents per pound, 52 points less than the previous week. Bales offered for sale by growers stood at 251,000.

One souring factor through the week was the export data. Export Sales for the week ended November 28 were lower than in recent weeks. That isn’t surprising given the truncated week owing to Thanksgiving holiday. Despite many traders’ vacations, U.S. exporters were still able to put together net new sales of 163,700 bales of Upland cotton and were able to actually ship 166,700. Major buyers included Bangladesh (65,100 bales), Vietnam (34,500), and Pakistan (12,800). Fourteen destination markets were active, which is a healthy breadth of interest. Outstanding sales and shipments are both ahead of last year, implying that the USDA’s current export forecast of 16.5 million bales still looks reasonable so far.

On the trade front, it wasn’t an easy week, though. The market has been whiplashed by alternating positive and negative headlines regarding U.S.-China relations. Although, both sides have continued to make public comments that negotiations are progressing. Nothing is solved until the deal is made, but the next major milestone traders are watching is the approach of December 15, when tariffs that would be cancelled in the case of a deal are scheduled to take effect.

Brokerages attribute cotton’s fair performance to the general optimism that 'phase 1' of the U.S.-China talks may go through.

A major mood uplifting came through China when it said about waiving import tariffs for some soybeans and pork shipments from the United States.

An array of mixed economic data added uncertainty to the week. While the U.S. trade deficit declined and jobless claims were less than expected, U.S. manufacturing and construction readings were worse than expected. Additional discussion of tariffs on Argentina, Brazil, and France were negative for the market. With investment confidence at a low amidst the uncertainty, the U.S. Dollar declined to its lowest level in a month versus developed economy currencies. This still has not removed the headwind that U.S. exporters face as emerging market currencies and commodity competitor currencies are still relatively weak.

Even the crop progress in the U.S cotton belt kept the prices from freely rallying northward. Industry estimates that Texas and Oklahoma have harvested about 85 percent, and Kansas roughly 75 percent. If the weather favourable in West Texas some gins will finish up ginning around Christmas.

Now market is eyeing the monthly WASDE report. USDA December report will be released next Tuesday, December 10 at 11:00 a.m. Central Time. Expectations are generally for lower production, but there are expectations of lower consumption in several countries as well. Outside of the WASDE, next week’s export sales figures should help confirm if the current report was a slowdown in demand or a holiday blip. And, as always, significant vigilance will be expended in watching for any news about a trade deal with China.

Data released by the US Commodities Futures Trading Commission data for the week to 03 December showed Managed money traders increased their net short position while Trade reduced their net short position. Managed money increased their net short position by 2615 contracts to 7661 contracts. Trade reduced their net short position by 3630 contracts to 26872 contracts. Open interest for the week was down by 3202 contracts at 2,29,124 contracts.

Market has managed to move up since last tow weeks on hopes of the US-China trade agreement. But it should be noted that trade agreement is not going to genuinely increase global demand it will merely shift the Chinese buying from other countries to the US. Price may move up further if trade deal materializes or US postpones the increase in tariff due on 15th December but it is unlikely to sustain higher levels as there is ample global supply.

Support for March cotton is 64 cents/lb and resistance is 68 cents/lb.

(Commoditiescontrol Bureau)

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