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Weekly: Technicals Indicate Further Price Correction For ICE Cotton As Net Shorts Add Up; Market Eyes USDA Planting Intentions

29 Mar 2020 9:55 pm
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Mumbai (Commodities Control) – ICE cotton marks 3rd weekly decline in a row, as May cotton sheds 235 points for the week ended 27th March. The market continues to suffer at the hands of coronavirus, as the infections rise across the World. In nearly five weeks, May contract has lost over 1700 points or 25% of its value.

This is the 3rd week of cotton market under the bear grip. For the week ended 24th March, CFTC showed Cotton speculative traders were 15,255 contracts net short, that’s 2790 contracts more than last week. While net short positions by speculators have nearly doubled in a fortnight’s time from 7,946 contracts for the week-ended 10th March.The open interest stood at 262,858 contracts, down 4182 contracts.

On Friday, Cotton futures were down 112 to 155 points on Friday, as ICE cotton declined for third consecutive week. Markets grappled with the economic fallout from the coronavirus pandemic. The May-July spread has narrowed and inverted to 5 points.

Cotton contract for May settled down 145 points at 51.33 cents per lb. It traded within a range of 51.15 and 53.32 cents a lb. The contract was down 4.4% for the week. July Cotton closed at 51.28 cents/lb, down 155 points. Through the week, all contracts managed to trade above 50 cent mark.

"Cotton prices continue to fall in response to continued instability in financial markets, and demand destruction from the COVID-19 virus," said Barry Bean, a cotton buyer based in Gideon, Missouri.

"News of spot market shutdowns in India, port closures, and long term economic damage have simply added fuel to the fire."

India, Asia's third-largest economy, has imposed a nationwide lockdown since Wednesday to fight the coronavirus and contain its spread.

Under the Virus fear, a triple digit downfall marked the start of the week. Cotton contracts for May settled down 153 points at 52.15 cents per lb. The contract fell more than 5% to 50.68 cents earlier in the session, its lowest since June 2009.

U.S. Federal Reserve rolled out an array of programs to cushion an economic shock from sweeping restrictions on people and businesses that scientists say are needed to limit the spread of the coronavirus.

Dock workers in Brazil were scheduled vote on Monday, whether to strike and close the Santos port for corona virus containment. However, the unionized vote was called off obliging by the governments request. According to the sources, the vote has not been rescheduled and the ports remain open for now.

However on Tuesday, ICE cotton futures ended 74 to 188 points higher tracking the equities. The stock market hit the limit earlier and ended with Dow gaining 2,112.98 points. Tuesday’s session snapped a six-day losing streak, as investors hoped for major stimulus measures to cushion the blow from the coronavirus epidemic.

Cotton contract for May closed at 52.89 cents, up 74 points. It traded within a range of 51.16 and 54.87 cents a lb. The contract was on track to record its biggest one-day percentage gain since September 2019. July Cotton closed at 53.01 cents, up 147 points.

The strength rally continued through Wednesday, with ICE cotton futures settling higher as the market drew optimism from hopes of a $2 trillion rescue package to counter the strain on economy from the coronavirus pandemic.

Dow Jones had gained 1,300 points through its trading session to boost confidence in the market.

Cotton contracts for May ended 55 cents higher to 53.54 cents per lb. It traded within a range of 52.22 and 54.28 cents a lb. July Cotton closed at 53.53 cents, up 52 points. October Cotton settled at 55.19 cents, up 49 points and December Cotton closed at 55.04 cents, up 39 points.

However on Thursday, the market settled lower due to weak export sales data. Cotton futures ended Thursday’s trading session with 43 to 70 point losses. Cotton sales from the weekly Export Sales report were 277,091 RBs on the week ending 19th March. That is 19% lower W/W, and 23% from the prior 4-week average.

Market slipped on concerns over demand hit by the coronavirus outbreak, overshadowed a $2 trillion rescue package passed by the U.S. Senate.

Cotton contract for May settled down 63 points at 52.81 cents per lb. It traded within a range of 52.5 and 54.01 cents a lb. While, July Cotton closed at 52.83 cents, down 70 points.

Amid all, exacerbating demand concerns was a surge in the number of Americans filing claims for unemployment benefits to a record of more than 3 million last week.

The novel coronavirus, which has killed at least killed 24,887 people and infected 551,823 globally, caused a halt in most economic activities worldwide.

The U.S. House of Representatives on Friday approved a $2.2 trillion aid package - the largest in American history - to help people and businesses cope with the economic downturn inflicted by the coronavirus pandemic.

However the commodity trade advisers say that the stimulus package will also take its own time to work and meanwhile the pressurized prices would affect the cotton acres.

Having said so, market analysts and participants are yet to gather any optimism amid global lockdown to combat the deadly pandemic. Trade and travel restrictions across the World has lead to companies in all sectors suspend their operations, which is affecting the market sentiment and raising concerns about future demand growth.

Market, now, eyes next week's planting intentions by USDA for 2020. The average industry estimate stands at 12.50 million acres. Analysts and traders have projected US cotton plantings at 12.40 million acres, while the average of the USDA and National Cotton Council (NCC) early season forecasts is 12.75 million acres.

A gradual increase in the net short position of Managed money indicates that market may remain in bear grip in near term. But any positive news from planting intention may lead to a pull back rally in oversold market. Support for May contract is at 50 cents/lb and resistance is at 55 cents.

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