Futures prices pushed higher and set a new high for the move which started in mid-July. Since then the market has gained 500 points (based on the Dec17 contract). However, the advance has been accompanied by only moderate volume and a futures open interest which has increased just marginally.
Prices have approached an area where resistance is getting thicker, especially between the 72.00-73.00 area. In the short-term, it most likely would take a strong effort by specs to convincingly push and keep prices above mentioned levels.
Technical picture: the short-term trend remains bullish but momentum appears to weaken. Resistance is at 71.00-71.50 and key between 72.00 and 73.00. Support is at 70.30-70.00, key1 at 68.40-68.00 and key2 at 67.50-67.00. Overall, the advance from the mid-July lows can still be regarded as corrective counter-trend action of the down-move which occurred between March and June/July. Settling and building value above 73.00 may void this view.
Brazil – 30-40% of the crop is harvested which is estimated to be about 10 % less than in the previous year. Unusually cold weather led to the delay. Yields are said to be record high, specifically in Bahia and several sources estimate the final crop to reach up to 1.5 mio. tons in total. Cotton specs are good with micronair levels on the higher side. Nevertheless, steady efforts in cotton quality over the past years are paid off with overall very good specs results. Offers ex origin into the export market are still scarce or simply non-existent. As of yet, selling was mainly focused to the domestic industry.
India – Cotton planting in India reached to 11.43 million hectares as of August 3 compared to same period last year at 9.65 million hectares, according to Ministry of Agriculture. Cotton planting has progressed 95% towards USDA’s projection of total area at 12.0 million ha for 2017-18. Reports from the fields suggest that initial cases of whitefly noticed in Northern Indian states and pink bollworm in the Central-Southern (Gujarat and Maha¬rashtra) regions which may impact on the yields but the higher acreage under cotton this year will compensate the yield losses. As per the latest data reported by ministry of commerce, India exported about 893.6K million tons of raw cotton till May’17 during the 2016-17 (Oct-Sept) v/s 1107K million tons same period of the last year. Cotton 29 mm MCX (October contract) broke the important resistance levels of 18’800-18’850 during the week. Short-term outlook is positive. The next resistance seen at 19,400-19,450 and support at 18,750¬18,800.
China – The January contract in ZCE is now leading. This week it has broken up and the daily chart looks now rather bullish. The former high around 15\’250 is now support, while strong resistance starts at 15’700.
That market strength has been somewhat surprising in view of two theoretically rather bearish events this week: First, the minimum price at the Reserve auctions has been reduced by about 400 RMB/ton (about 2.70 c/lb) in consequence of the Cotlook Index switching to new crop; second, it has now been officially confirmed that Reserve auctions will continue until end of September. But apparently physical demand has been suffi¬cient to overcome that negative news; the clearing rate at the latest Reserve auctions has sharply increased again, in spite of most offered lots being of less desirable qualities from Eastern China.
Import demand however has come almost to a standstill, as most buyers have covered their immediate needs and are unwilling to follow the higher prices of ICE. There remains still some underlying demand about 2-3 c/lb below the market though.