Cotton Insight Report – July 13, 2016 : Karvy Commodities


Market Review and News highlights:

MCX traded cotton futures traded on mixed to higher note tracking firm cues from global market. Global cotton prices witnessed sharp gains yesterday after the release of USDA World Agricultural Supply and Demand Estimation (WASDE) report estimated supportive supply and demand dynamics for cotton. Besides, weakening of Indian rupee amid slowed sowing over central region also supported cotton to the end the day on positive note. July delivery cotton closed at Rs.21990/bales, higher by 0.32% whereas Next month cotton contract at MCX rose by 0.88% and settled at Rs.20660/bales. NCDEX Kapas futures fell marginally and closed at Rs.943/20kg, down by 0.11% against the previous close.

Spot prices of cotton also moved up yesterday on higher demand of fiber against limited supply in spot market. Gujarat S- 6 29 mm traded at Rs.44500to Rs.45500 per candy at Rajkot market.

On contrary, NCDEX August delivery Cotton seed oilcake contract extended its losses and closed at Rs.2591/quintal, down by 0.58% from the previous close.

At global front, ICE cotton futures continued its rally today jumped 5% to 74.78 cent during early hours of today’s trade. ICE cotton futures soared up to two year high following supportive cues from most awaiting USDA monthly supply and demand estimation report released yesterday. USDA not only lowered the global production estimations for year 2016-17 but also revised global ending stocks downwardly owing to higher consumption in China and Pakistan. Higher export projection for US driven by increase in US cotton production amid tighter global stocks prompted speculators to enlarge their long positions yesterday. Besides, weakening of US dollar also added bullishness to ICE cotton futures. Dec delivery cotton settled at 70.78 cent/lb yesterday, higher by 4.41 % from the previous close.

World cotton prices benchmark Cotlook A index rose by 0.7% Monday and closed at 76.5 cent.

Outlook and Strategy:

MCX Cotton futures are expected to trade higher owing to supportive fundamental for cotton. Brisk buying by millers amid rising concerns over delayed sowing is likely to keep cotton prices higher in coming days. Cotton sowing may get slowed further due to unfavorable drier weather condition as Gujarat may witness dry spell of monsoon for next two week as per World weather Inc forecast. In the meanwhile, USDA revised its Indian cotton production estimations for year 2016-17 downwardly to 352.64 lakh bales of 170 kg against the total consumption of 307.76 lakh bales in its monthly supply and demand estimation report. Moreover, total cotton export from India is estimated higher from the earlier estimation but likely to be down against the last year export. India may export 53.85 lakh balkes of cotton in upcoming season.

Besides, total global cotton production fort year 2016-17 was revised lower against the earlier estimation of June but likely to be higher by 4.7% Y/Y against the last year. USDA estimated total global production for year 2016-17 at 102.55 million bales of 218 kg or 480 lb each against the total consumption of 111.60 million bales.

Sowing Update

Cotton sowing activities across India has lagged behind by 23% Y/Y as on 8th July estimated by Ministry of Agriculture India. About 67.89 lakh hectare was sown under cotton till 8th July against the 87.83 lakh hectare planted during last year. Highest fall in cotton sowing is being seen for Gujarat where has slowed by 41%Y/Y till 11th July due to delay in onset of monsoon rainfall. Gujarat Agricultural ministry pegged total sowing area under cotton at 13.65 lakh hectare till 11th July against the 23.19 lakh hectare of last year.

Similarly, Cotton planting in Maharashtra has got delayed due to delayed monsoon as about only 24.52 lakh hectare was sown under cotton till 9th July against the 30.35 lakh hectare of last year during corresponding period.

As per market sources, total cotton acreages in Punjab has dropped by 43.11 % to 2.56 lakh hectares in the 2016-17 crop year, from 4.5 lakh hectare in the previous year. Similarly, cotton area coverage in Haryana fell by 14 per cent to 5 lakh hectares this year as against 5.8 lakh hectares in 2015-16.