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Weekly: ICE Cotton Ends Weak Despite Shortcovering, U.S. Crop Concerns; Price Trend Mixed-to-Upward As Mkt Awaits WASDE Report

9 Aug 2020 7:16 pm
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Mumbai (Commodities Control) – Hefty profit-booking on Friday left ICE cotton futures in red, as the most-active December futures ended 30 points lower for the week ended 7th August; erasing a week of gains. This weekly loss followed a chunky gain of 256 points for the week ended 31st July. 

NY Cotton continued its northward rally, from the previous week, between 3-6 August. Adverse weather and field conditions across the production belt in the U.S., along with weak dollar and strong export sales of the U.S. cotton to China were the primary bullish factors.

According to NASS, 91% of 2020/21 cotton was squaring as of August 2. That matches the 5-yr average. Also in the weekly update, 54% of cotton was setting bolls. That is 1ppt behind average nationally, but in TX and GA crops were 1ppt ahead of their respective averages.

During the week, the United States Department of Agriculture's weekly crop progress report showed 45% of the crop in good/excellent condition, compared with 54% a year ago.

Even the dollar index slid to a near 2-year low on Wednesday, making commodities priced in the U.S. unit, like cotton, cheaper for holders of other currencies.

Supporting the market further was some optimism on the trade deal between the United States, the biggest cotton exporter and China, it's largest buyer.

Underpinning the strength was Thursday’s export data. The U.S. Department of Agriculture's (USDA) weekly export sales report showed exports of 346,800 running bales were up 8% from the previous week, out of which 116,700 running bales were shipped to China.

ICE cotton December futures garnered 216 points during the first four days of the week. However, it pared all the gains due to hard selling on Friday.

ICE cotton futures slumped more than 4% on Friday, which was the biggest daily fall since early April, as speculators gave up their positions fearing that amid a lack of demand the natural fiber could no longer hold gains.
Cotton contracts for December closed at 62.36 cents, down 249 points, thereby ending nearly 0.5% lower for the week, despite having touched one month highs on Thursday. Meanwhile, March 21 Cotton closed at 63.19 cents, down 230 points. Dec’20-Mar’21 spread stood at 83 points vs 59 points in the prior week.

"Cotton tested a resistance at 64.90 cents yesterday and it traded above that range for some time but failed to close above it," said Bailey Thomen, cotton risk management associate with StoneX Group.

"We are seeing a lot of speculators giving up their positions as fundamental factors, mainly demand, are lacking for cotton to break above that level."

"The hot weather in Texas, the trade deal with China and a weaker dollar, added together is supporting the market," said Rogers Varner, president of Varner Brokerage in Cleveland.

However, "in the mid-60 cents range the price is too high, considering the demand prospects are not too good," Varner said.

Markets now await the U.S. Agriculture Department's monthly supply and demand report next week and an Aug. 15 meeting between the United States and China to review their Phase 1 trade deal.

Tensions between the two nations flared up as U.S. President Donald Trump unveiled sweeping bans on U.S. transactions with two popular Chinese apps.

The Commitment of Traders report with data from the week ending August 4, showed cotton speculative traders were 31,335 contracts net long. That was an increase of 5,700 wk/wk .

Experts observe that from a technical point of view, the way the market has remarkably reversed the breakdown of two weeks ago. However, fundamentals remain bearish, as there is still a lot of cotton to digest around the globe. 

Major Indian cotton markets gained through the week tracking strength in global benchmark along with improved mill buying.

Early signs of pink bollworm (PBW) infestation in Maharashtra’s cotton fields have been spotted by farmers and the Agriculture Department. The infestation, which was reported in 51 villages, has been mainly in fields which saw sowing before the first week of June. At present, chances of the pest spilling over to the crops sown late cannot be ruled out as well. Farmers have to be extra vigilant to avoid a situation like that in 2017-18.

Also, Cotton acreage has slipped 9% in Gujarat. According to Gujarat Agriculture Department, cotton acreage has touched 22.48 Lk Ha as compared with 24.69 Lk Ha for the corresponding period last year. On an average, the acreage has been completed in 84.07% of the area. The average cotton acreage for the state is around 26.73 Lk Ha.

Now the market eagerly awaits WASDE report next week.

Having said so, Jack Scoville of  Chicago-based Price Futures Group sees a mixed-to-up trend in objectives of 67.60 cents and 68.10 cents for December futures. 

Meanwhile, immediate support and resistance for cotton #2 lies at 60.41 cents and 65.85 cents per lb, respectively.

(Commodities Control Bureau)


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