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Weekly: ICE Cotton end lower this week; risk-off sentiment hurts

5 Feb 2023 4:56 pm
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Mumbai, 5 FEB (Commoditiescontrol): Cotton futures felt a little pressure this week to Feb 3rd, with Monday and Friday weakness the major reason. Weekly U.S. exports data stepping off from the previous week and lower sales this year are pointing to further weakness in near-term.

ICE Cotton futures lost more than 1% to end Friday session lower, weighed down by a stronger U.S. dollar and weak sentiment in the wider financial markets.

ICE Cotton contracts for March 2023 finished at 85.43 cents, down 0.96 cent, July settled at 86.72 cents, down 1.00 cent and December 2023 ended at 85.15 cents, 0.85 cent lower; estimated volume was 45,732 contracts.

March Cotton's option expires next Friday, Feb. 10. Right now, it is hard to know what strike level will be key for traders. For the week, spot March is off 1.46 cents, and off 0.79 cent on the month, For the year, spot cotton is up 2.16 cents.

Meanwhile, the natural fibre suffered from significantly bearish cues from outside trading. Crude oil, gold, silver and cotton grains were all down in relation to the Labor Department's surprisingly strong report. Expectations were for 190,000 jobs, but the issue number was 517,000 new jobs. The U.S. job growth accelerated sharply in January while the unemployment rate hit a more than 53-1/2-year low of 3.4%, pointing to a persistently tight labor market.

The robust jobs data raised worries that the U.S. Federal Reserve would keep interest rates higher for longer in its fight against inflation, which dented investors' appetite for riskier assets.

The dollar jumped 1% to a three-week high against its rivals, making cotton more expensive for other currency holders.

Weekly Export Sales data from the USDA had 171,160 RBs of cotton exports for the week that ended 1/26. That was a 20% drop for the week, and was half of the same week last year. USDA confirmed 20,240 RBs of new crop cotton was sold leaving the forward book at 1.256m RBs.

Cotton sales have picked up. They're not spectacular but they are better then they were earlier in the year, analyst said. However, cotton market over the last three months, it's been a sideways affair and I think it's going to continue that way for a little while and eventually break out to the upside, they added.

USDA’s weekly Classings Report showed 98,017 bales were classed as upland cotton through the week for a season’s total of 13.426 million. Texas has classed 3.16 million, 2.6m were classed in Georgia, with Arizona, Mississippi, and North Carolina also each over 1 million bales.

USDA’s weekly Cotton Market Review showed 43,418 bales were sold at spot for the week, averaging 83.84 cents. The Seam had 9,982 bales sold on Feb 02 for an average gross price of 83.93 cents. The Feb 02 Cotlook A Index was 40 points lower to 100.95 cents. The new AWP for cotton is 75.24 cents, up by 19 points on the week.

Elsewhere, the Commitment of Traders report showed managed money firms were closing 5,100 shorts and adding 3,900 new longs through the week that ended Jan 24. That flipped the group back to net long, with a 7,122 contract net long as of Tuesday’s settle. Commercial cotton traders added 7,500 new short hedgers for a 40,416 contract net short.

There has been plenty of talk about the potential for a sharp drop in US cotton plantings this year given the high price of competing crops. Cotton classing data from USDA released on Friday showed 13.84 million bales of all cotton had been classed as of February 2. While weekly Export Sales report showed cotton bookings backing off from the previous week, new crop sales totaled 20,240 RB.

Further, the Cotton export shipments YTD have been 18% larger than last year, as unshipped sales commitments are 40% smaller. That is mainly indicative of the smaller crop. It puts total commitments down 21% in total vs last year. They are still 84% of USDA’s forecast total, 1% behind normal.

If we assume a 20% drop in planted area and use a 20-year average abandonment rate and trendline yield, ending stock could surge to 6.24 million bales for the 2023/24 marketing year. This would be up from 4.2 million in 2022/23, 3.75 million in 2021/22, and 3.5 million in 2020/21. This scenario assumes the same usage as the 2022/23 season.

For Monday, support for the December Cotton contract is at 84.84 cents and 84.24 cents, with resistance at 86.24 cents and 87.04 cents.

(By Commoditiescontrol Bureau: 09820130172)

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