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Weekly: Cotton futures flip to losses; Crop progress, lacklustre US exports sales weigh

27 Nov 2023 8:58 am
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Mumbai, 27 Nov (Commoditiescontrol): Cotton is the only commodity within the agriculture space has mustered support from the Thanksgiving tradition in the U.S. But, not much gains are seen, since it failed to translate into strong buying activity on the exchanges. Above average crop progress data and tethering exports sales are the major factor drawing prices lower for the week-ended Nov 24th.

On Friday, ICE cotton futures ended marginally higher, largely benefited from weaker US dollar, however, the natural fiber settled the truncated week lower after a U.S. report flagged a marketing-year low in weekly exports.

Cotton futures got a little bit of strength in the old crop contracts. Further, lingering demand concerns and a good harvest season continue to weigh on the natural fiber market.

Pick up in the pace of harvest (currently 6% above normal), lack of many harvest disruptions, and a clear weather outlook have put some increased harvest pressure on the market, traders said.

ICE Cotton contracts for December ended at 80.39, up 81 cents. March closed at 80.99 cents, 9 cents higher. May settled at 81.69 cents, adding 24 cents. Dec contract benefited from roll-over trade. The options expired last Friday. For the week, the contract slipped 0.63%, partially reversing gains of previous week.

Thanks to softer dollar, the natural fiber managed to recoup losses on Friday. The dollar index fell to its lowest in about 2-1/2 months. However, crude oil prices slid lower as investors turned cautious ahead of a meeting of OPEC+ this Sunday when the producer group may discuss deepening supply cuts.

Weak dollar and slide in oil markets are leading to influence natural fiber price movement. Softer green-back makes cotton cheap for overseas buyers; while slide in crude oil price makes polyester, a cotton substitute, less expensive. Last week, cotton prices fell to six month low on weak China demand outlook.

The U.S. Department of Agriculture's (USDA) weekly Export Sales report showed 322,212 running bales of cotton sold during the week ending November 16th. That was a slight drop compared to the previous week. Export shipments were reported at the lowest since November 2021 at 77,869 RB. But China accounted for nearly three-fourths of the net sales.

Crop Progress data showed 77% of the cotton crop harvested as of last Sunday, 6% above the average pace, as this year has run mostly uninterrupted. USDA’s Cotton Classing report showed 6.741 million bales classed as of November 23, adding 1.102 million bales on the week. During the same week in 2022, year to date classings was at 7.434 million bales.

The Cotlook A Index was back up 25 points on Nov 23 at 90.90 cents/lb after a drop on the 22nd. The AWP for this week is 65.23 cents/lb, up a penny from the week prior. The Seam had sales of 1,143 cash bales traded on Nov 22 at an average price of 71.09 cents/lb, back up 1.43 cents vs. the previous day.

Cotton's planted area in Brazil was estimated to rise 14.9% year-on-year to 1.94 million hectares, while output was forecast to jump 16.4% to an all-time high of 3.74 million tons, agribusiness consultancy Agroconsult said on Wednesday.

Managed money firms were adding shorts in cotton during the week that ended Nov 14, according to the Commitment of Traders data. That flipped the group from an 8,700 net long to a 5,899 contract net short. Commercial traders were closing hedges in near equal order. With 35,000 fewer hedges in place, the net short was 504 contracts weaker to 45,517.

Analysts and traders have highlighted that U.S. cotton prices are unlikely to gain much traction this year despite lesser output as trade tensions have been pushing key buyer China to other cotton producers like Brazil and Australia.

We have maintained in our previous reports that, China returning to market is driving optimism. The largest buyer of U.S. cotton has decided to stop auctioning cotton from state reserves as well, as per local report, which favours markets for now. These moves should keep markets fairly supported at lower level. December contract reclaiming 80 cents mark is crucial and key for market to maintain strong undertone.

For Monday, support for the March Cotton contract is at 80.21 cents and 79.43 cents, with resistance at 81.75 cents and 82.51 cents.

(By Commoditiescontrol Bureau: 09820130172)

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