Mumbai (Commodities Control) –NY Cotton hit its highest in more than a month on Friday posting its third straight weekly gain, on growing concerns over the lack of rainfall in and around Texas. ICE July cotton marked gains of 377 points or 4.43% for the week ended 23rd April, to settle at 88.80 cents per lb. July-December inverted spread stands at 387 points.
On Friday, Old crop futures closed the last trade day of the session 275 to 287 points higher. New crop futures closed 99 points to 155 points in the black. December contracts were up 2.9% on the week. May 21 Cotton closed at 87.51 cents, up 287 points and Dec 21 Cotton closed at 84.93 cents, up 118 points.
Last week, July cotton registered 129 points or 1.54% gains to end at 85.03 cents. May-July spread stands at 132 points vs 134 points last week.
On the technical front, CFTC’s weekly Commitment of Traders report showed net new cotton buying from managed money during the week ending 20th April. Spec funds extended their net long by 1,806 contracts to 51,892 contracts. The net longs in the managed money rose for the first time since five weeks. This was the result of simultaneous rise in the long position by 1,572 contracts and reduction in the short position by 233 contracts.
Commercial Open Interest dropped 4,890 contracts during the same week, for a net 1,972 contract reduction to their net short – now at 129,004 contracts.
According to the Cotton-on-Call based New York, dated 22nd April, the total unfixed call sales were reported at 95,613 contracts, up 1667 on a weekly basis and total unfixed call purchases rose by 773 contracts to 47,171 contracts. For July 2021, unfixed call sales were registered at 31,000 contracts and unfixed call purchases were reported at 5,025 contracts
"The situation in West Texas remains dire, as there is still no rain in the forecast. Farmers are also facing much higher input costs this season, as energy and fertilizer prices have gone up sharply," Peter Egli, director of risk management at British merchant Plexus Cotton, said in a note dated April 22.
"Unless there is soaking rain soon, we could see acreage drop dramatically, including irrigated acres", Egli's note said.
Experts add that soybean and corn prices scored a big assist for cotton this week. December cotton needs to keep pace if it wants to avoid a big shift in acreage. Corn and soybeans have lower input costs per acre than cotton, which apart from these stellar prices is another incentive for growers to opt for food crops this season.
The U.S. Department of Agriculture's weekly export sales report for cotton released on Thursday showed net sales down from the previous week and from the prior 4-week average. U.S Cotton net export sales of 103,100 RB, during 9-15 April, for 2020/2021 were down 16 percent from the previous week and 44 percent from the prior 4-week average.
The dollar is on course for a third weekly dip in a row, lowering the cost of purchasing cotton for buyers holding other currencies.
Global cotton experts note that the next 6-7 weeks are extremely crucial for cotton and NY futures are waiting to see how much cotton makes it out of the ground over the time. In case it rains, during the period for acreage to make some progress, the prices may cool off. But if the drought continues, then there are chances of reduced crop and exorbitantly higher prices.
Support and resistance for Cotton #2 lies at 84.79 and 91.05 cents per lb, respectively.
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