Reinhart – Weekly Cotton Market Report: April 28, 2016

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ICE Cotton Futures

It has been a pretty much featureless week for ICE cotton futures. The market has been trading quietly, with declining volumes and within a clearly defined consolidation pattern. Based on the Jul16 contract, it has settled within a just 50 points range between last Friday and yesterday. Evidently, ICE cotton did not pay much attention to the continued extreme volatility at the ZCE cotton futures market where since mid-April absurdly high volumes have been trading within a massive range expansion.

Technical picture: the short-term trend remains positive but it has lost momentum. Corrective counter-trend activity should ideally not extend below 62.00-61.80 in order to keep the bullish picture intact. Settling above 64.70-65.00 sets 66.00-66.50 as minimum upside objective area, followed by 68.00-68.70.

USA – The focus is back to planting in the US. California and Arizona are off to a good start and are at around 50 % planted. South Texas is the most ahead in planting. Central and West Texas have still to start planting. Due to severe storms early in the week and more ahead in the coming days there will be a risk of flash flooding in the final days of April. Planting for West Texas can be done until middle of June, so no worries. As shown on the US drought monitor there is no reason of concern for the planting season in the cotton belt, except in California and Arizona. For once especially West Texas has no issue with a drought and actually the ground has sufficient subsoil moisture. Weather allowing the planting should be soon on the way also in the Delta and the South Eastern states.

India – Indian cotton prices traded higher on slow selling by ginners and weak arrivals at major producing belts. Lint prices for Shankar-6 1.1/8″ G5 28 g/tex reported around Rs 34’800 per candy ex-gin equivalent to US Cents 67.70 per lb FOB based on prevailing exchange rate. The Commission for Agricultural Costs & Prices (CACP) has suggested an increase of Rs 60 per quintals in the minimum support price (MSP) each to Rs 3’860 per quintal for medium staple length cotton and Rs 4’160 per quintal for long staple length cotton of new seed cotton crop (kapas) for 2016-17 season (October-September). As per the Cotton Corporation of India (CCI), new cotton crop arrivals have reached 28.56 million bales (each bale 170 kg) in the current 2015-16 season (October-September) till 26th April which is about 15 percent lower as compared to the corresponding period of last year. The reduction in arrivals during the ongoing season is a clear indication of a lower crop this year and the crop size might be around 32.5-33 million bales. Cotton 29 mm at MCX (May contract) featured extended gains during the week and making a rising wedge pattern which is a bearish sign for the market. Immediate key resistance level is now sets at 17’700-17’750 levels and support at 17’300-17’350 levels.

China – It appears that the short squeeze at the ZCE cotton futures market we were witnessing during past two weeks is becoming history. After having set a new contract high at 13’450 (basis Sep16 contract) last Friday prices have been in a sideways consolidation between 12’600 and 13’400 on declining volumes. Only in the last day of the reporting period prices showed a sign of weakness and dropped below the short-term 12’600 support. Today’s break set a base for a corrective move with the initial pullback area at 12’000-11’600. The next important key support level comes in at around 11’250.

Physical domestic business is at a standstill as the reserve is expected to start auctioning cotton on 3rd of May. Mills are trying to digest the recent events at the ZCE market. Although the cotton futures rallied 3’000 pts or 30% (basis most active contract) in the past two weeks, prices of physical went up only few hundred points. Most mills are only considering consignments in the ports and buying small quantities hand-to-mouth.

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