Mumbai, 13 May (Commoditiescontrol): For cotton complex it was mixed bag of fundamental/technical factors that have influenced poor performance during the week ended May 10th. Prices of the natural fiber softened further, extending their recent decline, as positive data from the U.S. Federal agency was negated by strong dollar and cheaper crude oil prices.
On Friday, ICE cotton futures ended lower, sliding for second straight session, despite the federal monthly demand and supply report calling for a tighter carryout on old crop. The so-called uninspiring data prompted long liquidation among traders.
The currency cues remained bearish for natural fiber. The dollar inched higher as investors digested a reading on U.S. consumer sentiment and sifted through a flurry of comments from Federal Reserve officials.
ICE Cotton contracts for July closed at 77.31 cents, 129 points lower. Oct settled at 76.74 cents, losing 101 points. Mar ended 128 point weak at 76.73 cents. Cotton limits are back to 3 cents with July slipping back in the 70 cent level. The US dollar index was down 336 points, with crude oil up 56 cents. For the week, July contract ended 1.7% lower while new crop crop December was down 84 points (1.11%).
Cotton forms inverse correlation with the rude oil prices. Which crude oil prices wavering between positive and negative territory in a narrow trading range as investors grappled with conflicting demand signals out of China and the U.S. Higher oil prices make cotton-substitute polyester more expensive.
Investors after taking cognizance of Thursday's US export sales data, they were surprised by lighter world cotton balance sheet.
The U.S. Department of Agriculture's (USDA) final cotton production estimate was released at 12.07 million bales this morning, as the WAOB trimmed the old crop carryout total by 100,000 bales to 2.4 million. For new crop, initial production is seen at 16 million bales, with the stocks total building to 3.7 million bales. Export shipments in that week picked up from the previous week to 249,628 RB.
For the world side of the balance sheet, WAOB took the 23/24 carryout 2.6 million bales lighter to 80.48 million, mainly on a smaller carry-in. The 24/25 ending stocks figure is projected to build by 2.53 million bales to 83.01 million.
On Thursday, USDA's weekly export sales report showed net sales of 253,700 running bales (RB) for 2023/2024, up noticeably from the previous week and the prior 4-week average. The report also showed exports of 249,600 RB, up 39% from the previous week and up 2% from the prior four-week average.
Weather condition is expected to improve for a wide swath of the Southeast US over the next week, stretching from Central/Eastern Texas and parts of the panhandle to the East Coast. This may help to slow what has been a fast paced planting season thus far.
Earlier this week, the US cotton crop was reported at 24% planted as of Sunday, a 9% advance over the last week. The 5 year average planting pace for the crop is 20% complete by May 5, according to USDA/NASS. Of the major cotton acreage states, Texas was 3% faster than normal at 24%, with Georgia 4% ahead at 21%.
The Seam reported 440 bales sold on Thursday at an average price of 73.25 cents/lb. ICE certified cotton stocks were down 1,492 on decertification on May 8 at 166,487 bales. The Cotlook A Index was up another 250 points on May 8 at 87.90 cents/lb. The AWP dropped another 91 points to 59.64 on Thursday and is good through next week.
The Friday afternoon Commitment of Traders report showed spec adding 11,765 contracts to their new net short position as of 5/7 at 13,699 contracts.
In the previous week report, we maintained bearish outlook on cotton in the near term as the demand/supply factor remain discouraging. On the technical front as well, the cotton prices are trading below 50-, 100- and 200-day moving averages. Speculators who trade on technical signals regard a break below such moving averages as a bearish sign. There is skepticism about the U.S. cotton prices gaining traction this year. This 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. Meanwhile, the prospect of a Middle East ceasefire agreement and persistent U.S. inflation dampening the expected pace of interest rate cuts will be the guiding factor for global markets.
For Monday, support for the Jul Cotton contract is at 76.45 cents and 75.58 cents, with resistance at 78.38 cents and 79.44 cents.
(By Commoditiescontrol Bureau: 09820130172)
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