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Weekly: ICE cotton futures extend decline; no respite from strong dollar and technical selling

22 Apr 2024 8:57 am
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Mumbai, 22 Apr (Commoditiescontrol): Cotton complex continued to feel the pressure from technical factor induced selling and strong dollar - the top two key factors that have dominated market forces in the recent past. There's no respite insight from the on-going bearish environment and hence, the natural fibre has maintained soft tone during the week ended Apr 19.

However, ICE cotton futures ended Friday's session higher, led by gains in nearby contracts as spike in crude oil prices boosted natural fiber demand. Heightened tension in the Middle-East has caused a volatility in the energy markets. Recent slump in cotton prices also triggered short-covering during the week-end session.

Reports of Israeli carrying out air-strikes in Iran created jitters in markets as fears of escalation run high. However, Iran reportedly downplayed the attacks, indicating there would be no retaliation in response.

ICE Cotton contracts for May closed at 78.69 cents, 59 points higher. Jul settled at 81.02 cents, adding 41 points. Dec ended 14 point strong at 77.55 cents. The death spiral liquidation continues for May as longs get out before deliveries, with rest of the contracts following along. As a result, the contract concluded the week 4.8% lower.

Thursday afternoon’s Cotton on-Call report showed 6,900 contracts of unfixed call sales for May, down 3,672 on the week. July was up 5,426 contracts to 28,421 contracts. Overall, on the week unfixed call sales were up 2,828 contracts to 70,843 contracts. The unfixed call purchases are large for December at 40,708 contracts.

The U.S. Department of Agriculture's (USDA) weekly export sales report showed net sales of 146,100 running bales for 2023/2024, up 79% from the previous week and 64% from the prior four-week average. The report also showed exports of 266,700 running bales, down 3% from the previous week and 24% from the prior four-week average.

Cotton planting across the US has now been reported at 8% complete according to NASS, even with the average pace in the last 5 years. That was also 1% ahead of last year. Cotton planting in the two major cotton growing states is off to a slightly slower start, with Texas at 13% complete and Georgia 1% planted, both 1% back of normal, despite the national level on par with average.

The U.S. Department of Agriculture's (USDA) weekly export sales report showed net sales of 81,500 running bales for 2023/2024, down 4% from the previous week, and 10% from the prior 4-week average.

According to the World Agricultural Supply and Demand Estimates (WASDE) report on Thursday, world trade for 2023/24 was projected 700,000 bales higher this month to nearly 44 million.

USDA left the US cotton balance sheet alone this month, as they wait for final production data next month. Stocks are still at 2.5 million bales, though the US average farm price was trimmed by a penny to 76 cents. The World cotton S&D table was a 0.26 million bale cut to stocks at 83.08 million bales, mainly on tighter carryover from the previous crop year.

World trade for 2023/24 was projected 700,000 bales higher this month to nearly 44 million, as a 1.3-million-bale increase in China's imports was partially offset by reductions for Pakistan and Indonesia, as per the report.

Global ending stocks for 2023/24 were projected down nearly 300,000 bales in April as lower stocks across West Africa, Australia and Brazil more than offset higher supplies in China, the report added.

ICE certified cotton stocks were up another 3,351 bales on April 18 at 176,083 bales. The Cotlook A Index was down another 160 points to 87.35 cents/lb on April 18. The AWP dropped another 325 points to 62.18 yesterday and is good through next Thursday.

Commitment of Traders data confirmed a mass exodus of the managed money long in cotton futures in options in the week that ended on April 16, of 25,890 contracts. That was the largest bear move in a one-week Tuesday/Tuesday move since CFTC started the data series back in 2006 taking the net long down to just 36,142 contracts.

We maintain our view on cotton maintain soft tone in the near term as well and the demand/supply factors are key determinant for cotton trade. There's a little support from technical indicators such as traders cutting long position and falling open interest. The skepticism about the U.S. cotton prices gaining traction this year is neutralised by China buying cotton from other countries such as Brazil and Australia. Traders trimming their net long position in cotton futures, suggests cotton prices have entered consolidation phase once again.

For Monday, support for the Jul Cotton contract is at 80.29 cents and 79.56 cents, with resistance at 81.66 cents and 82.30 cents.

(By Commoditiescontrol Bureau: 09820130172)

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