Mumbai (Commodities Control) – Halting its consecutive weekly northward rally, ICE cotton futures, July contract lost 72 points or 0.81% for the week ended 30th April, but up 591 points on the month and 891 points on the year. July-December inverted spread stands at 302 points vs 387 points last week.
Through April, May cotton futures were up 668 points and July cotton futures were up 633 points between 30th March and 30th April 2021. May futures officially expire next week. The December contract gained 506 points through April.
During the week, the cotton market moved lower after meeting technical objectives and closing an overhead gap. Export data was not very helpful. Scattered rains across West Texas led to some long liquidation in the second half of the week.
Last week, 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.
This Friday, ICE Cotton futures were sharply higher overcoming Thursday’s bearish session. ICE cotton futures climbed more than 2% as China announced additional import quotas for the natural fiber, setting prices up for a monthly gain. ICE cotton contracts for May 21 closed at 87.43, up 154 points, Jul 21 Cotton closed at 88.08, up 154 points and Dec 21 Cotton closed at 85.06, up 122 points.
China announced a new import quota amount for cotton. China’s National Development and Reform Commission said it had issued an additional 700,000 metric ton (mt) quota for cotton imports this year, all of which is for nonstate traders and will be subject to a sliding scale tariffs system. The yearly quota was originally 894,000 MT for 2021; thus, with the addition the 2021 TRQ is 1.594 MMT ( approx. 7.32 million bales).
However, heading into the new month of May, most weather forecasts paint a drier and hotter situation for the Southwest. The outlook was somewhat validated by NOAA’s Drought Monitor, which updates every Thursday.
As mentioned above, Thursday’s decline was caused in part by poor weekly sales, end-of-the-month position squaring, scattered West Texas rains, and a wobbly Chicago grain market.
However the weather condition in Texas’ cotton producing belt is under scanner.
"The recent showers in West Texas are more hope than help at this point and unless they are followed by more moisture soon, they won’t amount to much more than a spit in the dust," Peter Egli, director of risk management at British merchant Plexus Cotton, said in a note dated April 29.
"With the 10-day forecast not showing much promise, we may be back to talking about drought next week," the note added.
Meanwhile, the Commitment of Traders report, with data from the close on 27th April, showed managed money was 58,668 contracts net long in cotton. That is a 6,776 contract larger net long from last week driven by new buying interest. This was the second consecutive weekly gains for net longs in the managed money amid simultaneous addition in the long position and reduction in the shorts. The open interest was edged up 15,494 contracts to 280,663.
According to the Cotton-on-Call based New York, dated 29th April, the total unfixed call sales were reported at 96,798 contracts vs 95,613 contracts, up 1185 on a weekly basis and total unfixed call purchases dropped by 1,130 contracts to 46,041 contracts. For July 2021, unfixed call sales were registered at 33,136 contracts vs 31,000 contracts last week and unfixed call purchases were reported at 5,640 contracts vs 5,025 contracts.
Globally, the Brazilian Cotton Producers Association (ABRAPA) has signed a memorandum of understanding with the Chinese Cotton Association to facilitate understanding between the needs and abilities of the two organizations. Brazil is the second largest cotton supplier to China, behind the US.
Meanwhile, China also continues to trade barbs with Australia, which has been outspoken in their criticism of China’s handling of the COVID-19 pandemic.
In a bearish development, Turkey is eyeing its first nationwide economic shutdown due to the COVID-19 pandemic. Turkey is a major consumer of US cotton, so this is especially unwelcome news for the cotton market. On the other hand, Turkey has eliminated their 3% duty on US cotton, which is positive for US exports.
Indian markets are being closely watched as the pandemic has reached catastrophic proportions. Daily cases are rising and the death toll is likely to grow further over the coming weeks or even months. This is disrupting trade and will likely take a toll on cotton consumption. So far spot and futures cotton and yarn prices have remained firm, but this might change as the situation worsens.
For next week, the technical analysts see money flow into the July contract remain generally bullish. The weekly US export report, weather conditions (and forecast) and the May WASDE report are likely to be potential market moving factors next week.
Looking at the performance of the ‘now-leading’ ICE July cotton, experts hope to see some consolidation in the mid-to-low 80s followed,possibly, by another higher push, depending on U.S plantings progress.
Support and resistance for Cotton #2 lies at 85.37 and 89.83 cents per lb, respectively.
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