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*ICE announced record total futures open interest of more than 47 million contracts

*WASDE projected a 2.4 million bale increase to US production

Recent rains in the top US cotton producing region West Texas have provided a boost to the crop, prompting the natural fiber to shed over 9% from an over 2-month peak at 90.81 cents a pound (454 gram) scaled earlier this month. Intercontinental Exchange (ICE) cotton futures edged down but held in a tight range of 83-84.50, with a firm dollar against a basket of 6 currencies offsetting continued pressure from forecasts for rain in West Texas this week. ICE announced record total futures open interest of more than 47 million contracts (50,000 pound each) on May 17, 2021.

This weekend’s rain should get them (West Texas) started with planting and that means that the USDA’s crop estimate is now more realistic than maybe a week ago. The US Department of Agriculture (USDA), in its May World Agricultural Supply and Demand Estimates (WASDE) report last week projected a 2.4 million bale (216 kg each) increase to US production in the 2021/22 marketing year.

International pressure against China over its Xinjiang policies has gained traction in recent months, with China criticized over the treatment of Uygur Muslims in Xinjiang Uygur autonomous region. China has denied allegations of forced labour and detention. We look at the issues in this series. It is spring in Uzbekistan and a new wave of cotton plants is rising from the earth.

China ranks second globally in cotton production, with more than 600,000 people employed in cotton processing factories in Xinjiang and producing nearly 5.9 million ton of the crop last year – the bulk of it from the far western region. The most active Zhengzhou Commodity Exchange cotton contract for September 2021 delivery lost 75 Yuan (about 11.67 Dollars) to close at 15,640 yuan per ton.

On a weekly basis, MCX managed to post around 1% gains in the second week of May against an 8% steep fall in ICE Cotton Futures. Cotton Association of India (CAI) has lowered Indian cotton consumption estimates by 1.5 million bales (170 kg each), which is negative for local cotton prices. MCX May Cotton trade at a discount of 14% from Cotlook A index price of 93.40 cents.

CAI revising higher Indian cotton export estimates for 2020-21 season at 6.5 million bales against 6 million bales projected till last month have helped domestic cotton to elude sell-off in the overseas market last week.

(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: 20-5-2021

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