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Weekly: Cotton's future align to banking crisis and the effect on global economy

25 Mar 2023 3:29 pm
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Mumbai, 25 MAR (Commoditiescontrol):Cotton's future prospect is aligned to the unfolding of event in banking space and the implication of the same on global economy. The demand factors remains a big worry in scenario where the other aspect of the equations are more or less identified. Banking crisis unfolding in the United States and European region and a fear of global contagion have dented prices of all the asset class, including the cotton this week. Cotton futures was spoiled, so much so that it wiped out entre early week gains, to the weakness in the last session.

That saw the ICE Cotton futures softened to more than three-month low on Friday. Supplies have more or less stabilised after a wobbly harvest season so far, the one part of the equation is already in place. It was the bearish investor sentiment across the wider financial markets on mounting concerns over the health of banking sector that has dealt a blow.

ICE Cotton contracts for May 2023 finished at 76.54 cents, down 1.04 cents, July settled at 77.17 cents, down 1.02 cents and December 2023, ended at 78.40 cents, 0.86 cent lower; estimated volume was 36,250 contracts.

May cotton is down 1.29 cents for the week, off 7.49 cents on the month, and minus 6.91 cents on the year.

During this week, Cotton prices movements was largely influenced by the bearish outside influences that discouraged buyers. To that end, banking stocks have been battered in the last two weeks following the sudden failures of two U.S. lenders and the emergency sale of embattled Swiss bank Credit Suisse to rival UBS. Then, overnight, Deutsche Bank was thought to be in trouble. With that the U.S. stock market weakened.

On the fundamental front, the weekly export-sales, the bookings were at a 4-week high. As per the USDA's weekly export sales report, the net sales of 310,200 running bales (RB) of cotton for 2022/2023, are up 38% from the previous week, and 33% from the prior four-week average. Net sales increased primarily for Vietnam at 115,300 RB, followed by China at 95,900 RB, the data showed. China is one of the top consumers of U.S. cotton. China does have the largest commitments for this marketing session at 2.241 million bales, followed by Pakistan at 1.961 million. For political and financial reasons, those two countries are living up to their expectations.

On the cumulative basis for 2022-23, cotton sales have reached 11.179 million bales, below the 13.96 million of last year, the lowest for this time of year since the 2015-16 season. Cotton export sales commitments are 20% smaller than a year ago, mainly due to the smaller supply. They are still 99% of USDA’s forecast for the full year, just slightly below the 5-year average commitment pace of 99%. The FSA trimmed the Adjusted World Price for cotton another 225 points on Thursday, to 66.33 cents/lb. ICE certified stocks were 1,485 bales on March 22.

USDA’s weekly Cotton Market review had 7,855 bales sold at spot this week for an average price of 75.43 cents/lb. The Cotlook A Index was 92.80 cents from March 23, up by 50 points.

Meanwhile, the U.S. dollar was higher Friday given the banking troubles unfolding in Europe. Global Investors are sometimes moving quickly among the various flight-to-quality havens, which includes the dollar, the yen, or gold.

At the heart of this bearish market is too much farmer holding of last year's production, large carry-outs and fears of a global economic slowdown. Just Wednesday, the ECB raised European rates as well.

Friday’s Commitment of Traders report showed money managers in cotton futures and options increasing their net short position by 10,602 contracts in the week of March 21, taking it to 24,255 contracts as of Tuesday.

Friday next week, March 31, USDA will publish its acres intentions survey for 2023 production. Several private groups are forecasting a sharp reduction in planted acres, perhaps as much as 20% or more, for the new crop market.

For Monday, support for the July Cotton contract is at 75.54 cents and 74.54 cents, with resistance at 77.70 cents and 78.86 cents.

Lingering worries over global banking space will be the key overhang for markets. Investors and funds taking losses on bank equity or AT1 or Contingent Convertible bonds will likely to sell other assets to free up cash. That can include closing out long or short positions in equities or commodities.

(By Commoditiescontrol Bureau: 09820130172)

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