ICE Cotton Futures
Following last week’s consolidation cotton futures have rallied to new highs for the current move. Based on the most active contract prices are at the highest level since August of last year. The break above 64.00 was key for generating strong bullish short-term momentum which sent prices to the minimum target area based on the break above 62.50 and 64.00. Yesterday’s session has displayed some first signs of (potential) near-term up-side exhaustion. While corn and in particular soybeans set strong daily gains, cotton futures managed to settle only marginally higher (based on the Dec16 contract). Consequently, the cotton-corn and especially cotton-soybeans ratio have further deteriorated. The futures volume of the past three trading session was large. However, it has to be noted that spread trading accounted for half of the volume.
Technical picture: As mentioned, the market has reached the first important up-side target measured from the break above 62.50 and then 64.00 and therefore it may not be surprising if prices start to pause or correct. Next target area would be 67.50-68.50. We place key support to keep the short-term bullish trend intact at 64.00 -63.60.
USA – The first week of June saw ICE cotton futures continue its modest rally. The board is basically flat now with Dec’16 finally trading at a small premium to the July contract which is likely influenced by the increase in certificated stocks. Still, the futures spreads imply little to no market value to cover the cost of storing cotton. Dec16 has managed to trade above 66.00 cents, however still below any level where producer selling would incur in a significant way. The other main cotton news included continued middle-of-the-road export sales, which is still following the expected demand pattern. An ongoing rainy pattern in Texas highlighted the trade-off between planting moisture and delayed planting, damage, or weed problems. Of course, it matters a lot where in Texas you happen to be. The majority of the State’s cotton acreage in the Texas South Plains and Rolling Plains likely benefited from the substantial rains that fell last week. Early in the week, the Southeast benefited from the results of a tropical storm. Fields had been mostly dry with producers actually irrigating where possible in order to get seeds to germinate. These recent rains will buy some time. Overall in the U.S. planting remains slightly behind the 5-year average with 75 percent of the crop now planted. As mentioned, certificated stocks continue to increase, presently at 116,085 bales. Only a few thousand bales redeemed from CCC loan stocks last week. Outstanding loans total 764’692 bales. The AWP remains above the base loan rate as firmer foreign growth prices have served to narrow the AWP/futures spread.
India – Indian cotton prices traded firm on restricted selling by ginners and diminishing cotton arrivals. India Meteorological Department (IMD) declared that the monsoon had arrived over Kerala on June 8 and it is expected to cover the whole country by 15th of July. Market participants expect cotton acreage to dip by 5-7 % from last year. India’s cotton acreage was around 11.8 million hectares in 2015-16 season. On the export front, Indian cotton exports reached 6.14 million bales till May end of 2015-16 season (October-September) versus 4.51 million bales same period a year ago. Indian rupee against US dollar hits four week high at 66.59 due to selling of dollar by banks and no change in interest rates by Reserve bank of India (RBI) at its policy review. Some import businesses were reported for West/East African cotton crop for July/August shipments at USc 72.50-74.00 per lbs. Cotton 29 mm at MCX (June contract) hits contract high (19070 levels) during the week and prices may consolidate in the near term. Immediate key resistance level is now sets at 19’080-19’150 levels and support at 18’500-18’550 levels.
China – The ZCE market remained range bound. Prices have been oscillating between 12’250 and 13’345 (basis Sep16 contact) for the past 6 weeks. A break to either side would prompt a move of at least 500-600 pts. The ZCE is closed today and tomorrow due to local holidays.
Reserve tenders continue daily but maximum volume is hardly reached because of persisting logistical problems and consist mainly of domestic cotton. This week there will be no tenders on Thursday and Friday because of Dragon Boat festivities. Total volume surpassed the 700’000 tons mark.
With higher ICE levels demand for imported cotton has practically disappeared.