Kotak Commodity Services Ltd

*World cotton production for 2017/18 with a projected 11% growth to be 25.4 million tons
*The speculative funds are near record longs so far at the beginning of the year and open interest is at a 9-year high Cotton to be a pretty fun trade moving at the beginning of the year.
Given the current fundamentals, analyst is not expecting a large increase or decrease as we have had in recent years. Is cotton market is wild cards for 2018? They said, India’s production and export levels could be market factors, in addition to the possibility that China may eventually loosen import caps. Also, cotton use is a definite wild card. Overall, cotton looks to hold 2017-18 acreage numbers.
After a few years of a slow recovery, cotton use has increased more markedly for the 2016 and 2017 crop years. The 2017 crop ended up larger than most thought it would be and prices have held because of demand growth and strong exports. International Cotton Advisory Committee (ICAC) said in a latest report that, world cotton production for 2017/18 with a projected 11% growth due to increased area to a projected 25.4 million tons. Following the sharp drop in production in 2015/16 the 2016/17 production recovered by 7% to 23 million tons. Production in the USA for the current season is expected to increase 25% to 4.7 million tons.
India remains the world’s largest producer with 2017/18 production expected to be 6.2 million tons with 8.7% growth. The Cotton Association of India (CAI) has maintained the crop size for the 2017/18 season at 375 lakh bales (of 170 kg each) in its latest estimates. In the cotton year 2017-18, it was estimated that total cotton output will be higher than last year by about 9 per cent in spite of pink bollworm issue in some of the cotton producing Indian states, said Ujwal Lahoti, chairman, The Cotton Textiles Export Promotion Council India (Texprocil). Major reason for decline in export of cotton is narrowing price parity between Indian cotton and international cotton prices.
The second largest producer, China, has production currently projected at 5.2 million tons with a 7.1% increase. Pakistan’s production projections for 2017/18 show an 11.5% increase to 1.9 million tons. Production increase in Turkey is estimated to grow 18% to 829,000 tons. Other major cotton producing countries are expected to have positive growth attributed to increased area and yields. For the last 10 weeks New York cotton future contract bottom 66.16 cent a pound (454 gram), that has been closing higher. Last week, it bucked the trend, closing lower at 77.94 cent. On Thursday it was 82.65 cent. This is a bit concerning for the risk management funds, because of the open interest in the market.
The speculative funds are near record longs so far at the beginning of the year, and open interest is at a 9-year high. Prices have been buoyed by robust demand for the fibre. Hedge funds are signalling more gains are in store, with investors holding the most net-wagers on a rally in seven months, according to U.S. government data. At present, the unfixed on-call data from the US Commodity Futures Trading Corporation suggest that roughly 10 cotton futures contracts will be bought for every one sold as mills finalize their on-call arrangements.
That raises the possibility of perhaps brief bursts of upward volatility at some predictable times of the year, such as late February, late April, and late June. Date: 12-1-2018

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