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Friday, February 23, 2024

Cotton market remained steady throughout the week and trading volumes remained low

The local cotton market remained steady throughout the week and trading volumes remained low. After the decline in the global cotton rates, Pakistani spinners have also started exploring global markets and booked some orders from the United States.

The rate of cotton in Sindh ranged between Rs 15,500 to Rs 18,000 per maund. The rate of Phutti continued to remain below government support price in Sindh being available between Rs 5,000 to Rs 7,200 per 40 kg.

In Punjab, the rate of cotton ranged from Rs 16,000 to Rs 18,000 per maund. But the rate of Phutti in Punjab was much better, fluctuating between Rs 6,500 to Rs 8,400 per 40 kg. Surprisingly the rate of cotton in Balochistan was the lowest in the country despite the fact its cotton is stated to be of best quality. Probably high transportation cost of the commodity to upland keeps the rates low. The rate of cotton in Balochistan ranged from Rs 17,000 to Rs 17,500 per maund. The rate of Phutti was between Rs 6,500 to Rs 8,000 per 40 kg.

The sales were very slow as only 400 bales of Ghotki were sold at Rs 18,000 per maund and 600 bales of Layyah were sold at Rs 17,000 per maund. The Spot Rate remained unchanged at Rs 17,500 per maund. Polyester Fiber was available at Rs 360 per kg.

India got 1st place in the world in cotton acreage with 120.69 Lakh Hectares area under cotton cultivation i.e. around 36 percent of the world area of 333 Lakh Hectares. Around 67 percent of India’s cotton is grown in rain-fed areas and 33 percent in irrigated areas. But in terms of productivity, India is on 38th rank with a yield of 510 kg/ha.

Australian cotton production is forecast to decrease by 8 percent to 1.2 million tonnes (or 5 million bales) in 2023–24 as drier climate conditions are expected to reduce the area planted to cotton.

In Brazil, the production for 2023/24 is forecast at 13.9 million bales (3.03 million metric tons, MMT), based on consistent yields. This would represent a decrease from the current season production, which is estimated at a record 14.1 million bales (3.07 MMT), where output was higher than anticipated due to favorable weather.

U.S. cotton production increased by 270,000 bales to 13.09 million bales as per the November WASDE Report. Cotton prices continued to decline, reaching an 11-month low during the week

Cotton prices continued last week’s descent, and even settled at an 11-month low at one point during the week. Out of the last 10 trading sessions, December futures closed lower for 8 of the sessions. This week was full of activity for the cotton market, which received pressure from cotton-specific news and the current macroeconomic environment. Much of the activity came from the largest index fund rolling its position from the December contract to the March contract, speculative selling, and options expiration. The release of the Export Sales Report and WASDE Report on Thursday helped provide a little support for the market, and nearby months finished in the green for the first time in over a week. December futures settled at 76.52 cents per pound, down 328 points when compared to the week prior. Daily trading volume was some of the highest on record, which can largely be credited to traders moving their positions forward. Since last Thursday, total open interest fell 6,981 contracts to 230,107 while certificated stock grew 5,193 bales to 83,652 bales. The drop in open interest stemmed mainly from the December contract, and in terms of open interest, March has now become the lead contract.

The stock market had a mixed, but overall solid week of gains. The NASDAQ and S&P 500 logged over a week of higher settlements, with the NASDAQ having its longest winning streak in two years.

The Dow did not post the winning streak the other indexes did. However, it has held steady this week, remaining at its highest level since mid-October. Cotton was not the only commodity struggling this week. Crude oil prices tanked as well, reaching the lowest price level since July, but did manage to finish in the green. Data out of China released this week suggested the economy is still struggling to recover post-pandemic. Markets in the U.S. have discounted another interest rate hike and are expecting the economy to slow down in the months to come. Weekly initial jobless claims fell slightly this week, which was right in line with expectations. The ever-resilient labor market is a big reason another raise in interest rates is not off the table, though the likelihood is declining.

The market has new data to trade on following the release of the World Agricultural Supply and Demand Estimates (WASDE) Report. Compared to what the market expected, the actual changes reported on the balance sheet were slightly bearish. Many analysts expected a cut to U.S. production, but USDA added 270,000 bales to the crop, bringing U.S. production to 13.09 million bales. Domestic consumption was lowered by 100,000 bales to 2.05 million bales, but exports were unchanged at 12.2 million bales. These revisions caused ending stocks to increase from 400,000 bales to 3.2 million bales.

State-wise, the expected crop size in the far West, mid-South, and Southeast were raised, which more than made up for the slight decrease in the Southwest crop. As expected, Texas production was lowered by 200,000 bales to 3.6 million bales and Kansas was unchanged at 165,000 bales. The 80,000-bale increase to bring Oklahoma production to 350,000 bales has many analysts confused. The current crop condition in Oklahoma had many expecting a cut to the state’s production.

On the global side of the balance sheet, ending stocks were raised from 1.58 million bales to 81.50 million bales. World consumption was lowered from 490,000 bales to 115.30 million bales. Chinese imports were raised by 500,000 bales while imports to Turkey and Vietnam were lowered by a combined 300,000 bales. Otherwise, there were no other notable changes made to the world estimates.

Demand for U.S. cotton remained strong for the third consecutive week. The Export Sales reported net sales of 395,200 Upland bales and 20,300 Pima bales. The biggest buyer of Upland cotton was China, purchasing 260,000 bales, followed by Vietnam with 54,500 bales, Pakistan with 27,200 bales, Bangladesh with 14,500 bales, and Mexico with 14,100 bales. Participation was widespread this week, with over 15 countries buying some amount of U.S. cotton. Unlike sales, shipments continue to disappoint and lag the pace needed to reach the current U.S. export estimate. A total of 90,600 Upland bales and 4,000 Pima bales were exported for the week.

Harvest resumed across West Texas, Oklahoma, and Kansas this week, as above-average seasonal temperatures and open skies were present. A cold front moved across the area Wednesday, bringing moisture to some parts of the Southwest, which could potentially delay harvest again. Harvest is progressing steadily throughout the Cotton Belt. Around 57 percent of the crop in the U.S. has been harvested, which is slightly above the 5-year average pace of 55 percent. There have been rumors that the rains in October could have caused discoloration in some of the West Texas crops. As this cotton has been harvested and ginned, the daily classing reports will be watched closely.

With a new WASDE in hand and Index rolling and options expiration behind us, the market will turn its focus back to the incoming harvest and remaining fixations for on-call contracts in December. The first Notice Day for the December contract is November 23, meaning notices of delivery will be issued and price limits will be removed on December futures. Otherwise, daily classing reports and the weekly Export Sales Report will continue to be a central focus for traders.

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