Cotton Market Insights: Current Market Scenario Vs Upcoming Market

Market Intelligence

Cotton Market Insights: Current Market Scenario Vs Upcoming Market

Indian cotton trade remains dull in the open market, except CCI sales of cotton. The current cotton season is almost at an end, with just 25 more days to go. There are many opposing factors in the market that are impacting buying decisions. From last two weeks, cotton prices moved up sharply from Rs33,000 per candy level to Rs 36500 per candy level in open market for 29mm/74-75RD. This was due to adverse weather conditions and support from ICE, which has again corrected to Rs 35500 level, with a dwindling monsoon, improved arrivals and stronger rupee against USD. Jump in ICE cotton has been reported due to risk to US cotton crop andtechnical movement. Current crop arrivals are reported at approximately 7000-8000 bales per day on all India basis. New crop arrivals have also started, but heavy monsoons are impacting arrivals. Apart from Northern India, MP and Gujarat have reported some quantities of new cotton arrival. Cotton sowing andcurrent crop scenario As on 28th August, all India cotton sowing area was about 3% higher the same time last year (128.41 lakh hectare for 2020-21 against 124.90 lakh hectares in 2019-20). The cotton sowing area is 106.19% higher compared to average of last five years' sowing area. Analysts expect excellent standing crop to result in higher production numbers for India subject to supportive weather in September. India is moving towards monsoon withdrawal. We have already entered into September month. And cotton crop is in first picking stage in northern regions, and in other states with early sowings. The current rainfall is a cause of concern now as this can harm maturing bolls, thus affecting quality and leading to delays in cotton picking. Heavy rains over the last two weeks have delayed crops by 10-15 days. And September weather is crucial to see how cotton arrivals move. CCI sales CCI'scotton sales were very aggressive in August. CCI and Maharashtra Federation sold approximately 61 lakh bales till 31st of August out of 133 lakh bales sourced in total. Now CCI is left with around 65 lakh bales andMahafed with around 11 lakh bales. From 26th August onwards, Cotton Corporation of India had suspended its auction for few days but again on September 2ndreleased its revised sales policy and is expected to restart auctions. Alongside, CCI is planning to buy cotton in the new season, at increased MSP. However, CCI and traders have huge cotton stocks which will certainly create fundamental pressure in the market. US crop development and Brazil cotton Hurricane season in US is threatening its cotton crop numbers, and ICE moved to 66-67 USC for its December contract with weather concerns and now again corrected towards 64 cents. According to the latest crop progress report, 28% of US cotton crop is rated poor vs. 25% last week and 22% two weeks ago. After Hurricane Laura hit the Texas/Louisiana coast, 9% of the Louisiana crop is now rated poor. Hot dry conditions in West Texas continues to take its toll with 42% of Texas cotton now rated poor vs. 37% in the previous week. In Brazil, harvesting is almost over with good crop size. For 2020 crop, export basis continues to remain under pressure despite better domestic market. Brazil can give again good competition to Indian cotton prices. China The RMB keeps strengthening against the USD. The Chinese government could interfere if it faces difficulties in exports due to weaker USD against RMB. After a long time, there is a slight improvement in China's cotton market - cotton stocks are declining despite ongoing reserve sales. Operating rates of spinning mills remains steady, no major improvement is reported. Good sign is that yarn stocks at spinning mills are declining. However, with rising cotton prices and comparatively weaker yarn prices, spinning profit margin has declined. INR against USD Indian rupee rose to its highest level in nearly sixmonths, gaining for a third straight sessionas foreign investors pile into domestic equity markets. The USD-INR has touched Rs 73, and could get stronger. The rupee rose about 2% for the week, its biggest weekly gain since the week ending December 21,2018. End of 2019-20 crop on MCX with August contract expiry August month contract was the last contract of the season 2019-20. It has expired on August 31, and closed higher with very thin volume traded on the last day. It has closed at 17,450 (+490) which is equivalent to per candy price of Rs. 36500, quite expensive compared to open market price. MCX has already launched 2020-21 crops contracts October-November and December, out of which October is most active at present. December did not have any trade for the last several sessions. MCX cotton October 20, market started to consolidate after making new contract high at 18260. Nearest support comes in at 17470. Resistance 18260, 19000 &supports are 17470, 17000, 16500. US cotton export sales for week ending 8/20/2020 Net sales of 156,600 RB for 2020/2021 primarily for Vietnam (75,500 RB), China (46,800 RB, including decreases of 177,700 RB), Turkey (11,200 RB), Pakistan (7,000 RB, including decreases of 200 RB), and Indonesia (4,800 RB, including 100 RB switched from Japan), were offset by reductions for Japan (1,100 RB) and Ecuador (400 RB). For 2021/2022, total net sales of 7,900 RB were for China. Exports of 277,500 RB were primarily to China (153,500 RB), Vietnam (29,400 RB), Indonesia (16,100 RB), Bangladesh (14,800 RB), and Pakistan (13,100 RB). Net sales of Pima totaling 12,600 RB were primarily for Peru (4,400 RB), India (3,300 RB), Vietnam (2,600 RB), China (900 RB), and Bangladesh (900 RB). Exports of 10,200 RB were primarily to China (2,400 RB), Vietnam (2,200 RB), India (1,900 RB), Pakistan (1,700 RB), and Indonesia (900 RB). From last one month, Indian market is switching between fundaments and sentiments. Despite huge cotton supply and limited demand, market prices have shot up (due to higher MSP next season, slowdown in current arrivals, heavy rains across major cotton growing regions in Indian and crop concerns in US reflected on ICE - ignoring ample supply against consumption) and now we are witnessing a correction, even as the above factors have not changed much. This implies that market fundamentals are working well and the market realizes that supply will continue to dominate. Market should trade lower but some short spikes can be seen with movement in cotton/yarn and its prices and with weather fluctuation, these can support market which should be temporary. If September weather is favorable and US crop is not affected too much with ongoing hurricanes, again market will have to trade lower for next two months despite higher MSP in India for the coming season. (Vimal Verma is a cotton trader)