The latest U.S. Department of Agriculture (USDA) cotton projections for 2019/20 (August-July) indicate that world cotton mill use is forecast to resume its growth after a 1.3-percent decline in 2018/19. Global cotton consumption is projected at 124.3 million bales in 2019/20, 2.6 percent above 2018/19’s 121.1- million-bale estimate, as lower global cotton prices support the rebound.
UGLY WEEK FOR ICE COTTON; SOME MID – SOUTH COTTON IN JEOPARDY FROM HEAVY RAINS
It proved to be an exceptionally ugly week for ICE cotton, with the Dec contract giving up 414 points to settle at 62.68 – a life of contract low finish. The July – Dec spread weakened to (106).
Market Movement from 08th Jul 2019 to 13th Jul 2019
• NY future remained bearish in trend during the week and finally week ended with 414 points loss.
• Wednesday ICE future opened higher and finished moderately higher because Tuesday market had fallen more than 3% to three years low. Thursday day USDA issued weekly export sales data and monthly supply demand estimates report. So, on Wednesday speculators jumped in the market for short profit booking before USDA reports.
USDA’s world supply demand report, released this past week, provided an understanding of the demise in cotton prices for not only the past two weeks, but also all the way back to February. Yes, the Chinese-U.S. trade tiff has played a role, but 2019 world production is expected to the be second highest on record at a time when major concerns are being expressed about world cotton demand.
The market broke out of a sideways move this week and resumed its downtrend, which had its origin 13 months ago. Since reaching a top of around 96 cents in June 2018 the market has dropped 33 cents and there is still no end to this slide in sight.
China cotton imports in 2019/20 are expected to surpass the previous year’s robust level, reinforcing its position as the world’s largest importer. The current 2018/19 estimate, boosted this month, is expected to be the largest in 5 years as China supplements domestic supplies amid ongoing auctions of State Reserve stocks. Despite this strong upward trend in imports, U.S. exports to China have weakened as Brazil, Australia, and other countries have expanded both exports and market share.
Cotton prices have been under attack. The meltdown started on Monday (July 8) and continued on Tuesday—new crop Dec19 futures losing 3 ½ cents over those 2 days. Prices tried to and did recover a bit yesterday (on Wednesday) before losing more ground today. Dec futures closed today with its nose just barely above 63 cents.
ICE COTTON POSTS MODEST GAINS ON HOLIDAY-SHORTENED WEEK, AHEAD OF JULY WASDE REPORT
ICE cotton picked up 74 points for the week ending July 5, finishing at 66.82. The July – Dec spread weakened to (100). Last weekend, our proprietary model (timely prediction available in our complete weekly report) predicted a settlement that was to be near unchanged to higher Vs the previous Friday’s finish, which proved correct.
Market Movement from 01st Jul 2019 to 06th Jul 2019
Week started with positive news of resumption of US-China trade dispute negotiation after Xi-Trump meeting at the G-20 summit in Osaka last weekend. NY Dec future remained higher during first 2-3 days of the week but finally settled at 66.82 cents 74 points higher from last Friday’s close.
• U.S. to Hold Off Implementing New Tariffs While Trade Talks Continue • Crop Report Shows Mixed Conditions and Slow Progress for U.S. Cotton • WASDE Report Focal Point in Week Ahead
Since speculators seem to be losing their power to force the market any lower and with growers not willing to chase values below 65 cents at this point in time, it could set the stage for some short-covering rallies. However, the trade is extremely under-hedged at just 2.34 million bales net and it would therefore take a tremendous amount of buying power to push the market through all the scale-up trade resistance.
Last season, US farmers planted 14.1 million acres of cotton. Back in March, USDA’s Prospective Plantings report estimated that farmers intended to plant 13.78 million acres this year—2.3% less than last year.
ICE COTTON REMAINS RANGE – BOUND, TRUMP – XI (AND TRUMP – KIM) MEETING ENDS ON POSITIVE NOTE
ICE cotton continued to consolidate for the week ending July 28, with the Dec contract posting a modest gain of 52 points; Dec gave up 99 points for the month of June. The July – Dec spread weakened to (61) but remains well below full carry.
Market Movement from 24th Jun 2019 to 29th Jun 2019
• NY future was without any direction, stayed in a small range and closed 52 points higher week on week. NY futures gave short lived knee jerk reaction to some rumours / false news but could not sustain it.
FAS Post estimates India’s marketing year (MY) 2019/20 cotton production at 29.3 million 480 lb. bales (37.5 million 170-kilogram bales/6.4 MMT) with a planting area of 12.5 million hectares. Planted area for Kharif 2019 season in Northern India is 18 percent higher than last year, prompted by high domestic seed cotton prices.
• Crop Progress and Conditions a Mixed Bag Across U.S. • USDA Acreage Report Puts Cotton Planted Acres at 13.72 Million • U.S. Export Sales Relatively Low • Xi-Trump Meeting at G-20 Summit
The market continues to muddle through the early days of summer while suffering from poor demand and crop concerns in the U.S, and India. Granted, there are other important crops around the world that are drawing attention, especially Pakistan. However, it is very early in the season and plantings in northern hemisphere crop are only slightly behind.
By and large the market is still stuck in a 400-point trading range, as growers are unwilling to sell the market below 6500, but are waiting for rallies towards 70 cents to do so. Speculators are still holding a sizeable net short position, but the loss of downside momentum and/or one of the potential triggers mentioned above could spark some spec short-covering and new buying.
Prices Rally Off New Low, No Signs of a Push Higher
New crop December futures have rallied from the recent new low below 65 cents. December is currently at 66+ and likely to track in the 65 to 68-69 cents range in the near term unless a major unforeseen factor arises.
Most benchmark prices decreased over the past month. Chinese prices moved sharply lower.
Open interest has shifted from July and into the December contract. After moving lower in early May, values for the July contract were volatile but range-bound between 65 and 70 cents/lb for most of the past month. Values for the December contract also moved lower in early May.
Cotton prices have rebounded in the past few weeks due to unfavorable weather and encouraging export sales. But before you get too excited, this bounce is off lows in the mid 60s.
FAS Post estimates India’s marketing year (MY) 2019/20 cotton production at 29.3 million 480 lb. bales (37.5 million 170-kilogram bales/6.4 MMT) from 12.45 million hectares of planted area.
MY 2019/20 cotton consumption at 25.3 million 480 lb. bales (32.4 million 170- kilogram bales/5.5 MMT)
Looking Beyond the Uncertainties of Trade Tensions
The trade dispute between the United States and China has impacted cotton demand and supply chains over the course of the past year. On 1 June 2019, China is set to increase tariffs on $60 billion of US goods in retaliation to the US tariff increase on the remaining $200 billion worth of Chinese imports.
India – Physical prices traded steady last week on slow selling from ginners and slow emand from domestic mills. As per the latest CCI report, India’s current cotton crop arrivals reached 27.88 million bales until 16th April 2019. The Indian rupee depreciated against the US dollar and is now around 70.10 (spot), mainly due to surging crude oil prices.
While corn remains the major safrinha crop for Brazilian farmers, more cotton acreage is being planted in Mato Grosso this spring, as well.
Over the past two years, cotton planting has increased by nearly one-third for the safrinha in Mato Grosso. The Brazilian Association of Cotton Producers(Abrapa) forecast cotton acreage to grow to 1.4 million hectares (3.46 million acres). Mato Grosso accounts for about 88% of Brazil’s cotton production.
Historical Revisions to Indian's Cotton Balance Sheet - USDA
Historical Revisions to Indian's Cotton Balance Sheet - USDA
Historical revisions have been made to India’s balance sheet for the years 2002/03 through 2013/14, with the stock adjustment carried forward. The revisions are based on the conclusion that market yard arrivals data underreported arrivals in the early portion of the harvest season. This conclusion was based on observed market activity in November for several years.
Online Kapas Sale Procedure With regard to online Kapas sale, following modus operandi may be followed: 1. Online Kapas sale can be undertaken broadly on the same lines as per the online cotton seed sale system followed by the Corporation at present, i.e. kapas may be sold online on per qtl. basis to the registered buyers. 2. For registration, the buyer has to pay refundable security deposit of Rs 5 lacs and shall have to obtain digital signature for participation in e-auction. ......
