Kotak Commodity Services Ltd

*The USDA lowers its forecast for global cotton consumption by 6.4% a whopping 7.6 million bales

*World ending stocks at their highest level in 5 years

Cotton seems to be following the optimism on the equities market, it is uncertain if the optimism around coronavirus levelling off will continue. ICE cotton futures jumped 6% this week at 54.32 cent a pound (454 gram) on Thursday. Though prices dropped to their lowest levels since April 2009, 48.36 cent quoted on April 2. It's still mostly trading sideways direction for now. It's not really moving too far out of the recent range.

If you are short a futures contract I would continue to place the stop loss at the 10-day high which now stands at 54.87 for the short period, however the chart structure will start to improve on a daily basis next week therefore lowering the monetary risk, said a trader. Wuhan, the Chinese city where the new coronavirus emerged ended its more than two-month lockdown on Wednesday, even as a small northern city ordered restrictions on its residents amid concern about a second wave of infections.

According to the monthly Chinese Agricultural Supply and Demand Estimates (CASDE), the outbreak has not had major impact on soybean and corn supplies to China, but dented demand for cotton. Mills in India, China, Vietnam, Pakistan and elsewhere are being shuttered, but another factor is that consumers around the world are buying less clothing and textile products as they stay home and away from brick and mortar retailers.

Cotton prices are trading far below their 20 and 100 day moving average as the trend clearly is to the downside, but for the bearish momentum to continue we have to break Wednesday's low of 48.35 which I think could happen in next week's trade as I see no reason to be bullish cotton so if you are short stay short, said an Indian cotton trader.

The USDA to lower its forecast for global cotton consumption by 6.4%, a whopping 7.6 million bales, said in a report released Thursday. World cotton usage is now expected to drop to just 110.6 million bales for the 2019-20 marketing year that runs through July. That’s down from last month’s forecast of 118.2 million bales.

USDA on Thursday lowered its forecast for US cotton exports to 15 million bales, a 9% drop from the department’s March forecast of 16.5 million bales. Current prices are now 10 to 20 cents lower. Prices are expected to remain pressured with global consumption forecast at a 6-year low, world ending stocks at their highest level in 5 years, and stocks outside of China 25% above the previous record.

In India the Cotton Association of India (CAI) has retained its March estimate of the crop for the 2019-20 seasons, at 35.45 million bales (170 kg each). It has estimated cotton consumption up to March 2020 at 15.4 million bales, while the export shipment was 3.1 million bales and estimated exports for the season at 4.2 million bales, the same as the previous year. Total cotton supply estimated by the CAI was 32.753 million bales, arrivals of 28.303 million bales till March 31, imports of 1.25 million bales, and the opening stock at 3.2 million bales at the beginning of the season.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 10-4-2020

Tri Une Impex Consultant

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