With reference to our last report, as expected, Indian cotton is trading at a weaker note even as arrivals have picked up after Diwali. The market is quite active now but still needs push. Arrivals have already crossed 1 lakh bales per day basis. Total arrivals till 12th Nov. 2019 for the season 2019-20 is reaching approximately 24 lakh bales, around 40% less than in the previous season (arrived till 12 Nov. 2018 – approximate 45 lakh bales), despite bumper crop estimates. Main reasons for the low arrivals are late sowing due to delayed monsoon and continued scattered rainfall till Diwali.
Quality concerns keep prices weak
Due to continued rainfall till Diwali, some quality concerns have been reported which are in regards to RD values, moisture, rain damaged cotton.
This has led to discounted cotton prices, way below its real value, resulting in a wide range of cotton prices. For instance, this week, Gujarat cotton prices reported a range of Rs 34,500-38,500 per candy – as per quality. These quality issues need to be sorted out soon, to lend support to price of quality cotton.
CCI has started to buy cotton at MSP in various states. Recently, CCI bought small quantities in Gujarat as well. We need to keep close watch on CCI’s buying activities, which can give a good indication of market movements.
Indian cotton exports could pick up
If Indian prices remain under pressure, export quantities will pick up soon (keeping ICE March around 66-67 and USD-INR 71-72 level), Export inquiries are already in the market and a few export shipments are also reported to Bangladesh and China. Weaker Indian rupee is supporting to make Indian cotton competitive in the export market.
Crop estimation 2019-20
Cotton Association of India (CAI) released its first crop estimates of 354.50lakh balesfor the season 2019-20, an increase of about 42.5 lakh bales from the 312 lakh bales reported in 2018-19. The increase is attributed to higher acreage under cotton than the previous season, CAI estimates yields to be higher as the country has received good rainfall this year, However, there are reports of damage to the crop in some pockets due to flooding. Keeping this in mind, the increase in crop is restricted to 13.62%.
In its estimate of Indian cotton crop, the US Department of Agriculture (USDA) had last month projected the crop size at 305 lakh US bales (each of 217.7 kg), or about 390 lakh India bales (each of 170 kg).
ICE Dec. contract is trading nearby 64-65 levelfor some time now, even good trading volume could not give direction to it. Thenextmost active ICE contract is “March” which is carrying highest open Interest and highest trading volume followed by ICE Dec. ICE Dec. contract expires soon, first notice day of this contract is 22nd Nov. 2019.
Technically ICE March contract is trading with its current resistance around 67 level if confirmed broken will enter in new resistance zone of 70-71 & current support is at 65 if confirm broken can enter in its new support zone of 64-63 level.
US-China trade war
Regarding the ongoing US-China trade war, over the weekend, US President Trump suggested the imminent lifting of tariffs was not going to happen. He indicated the talks were “going nicely,” but he was not going to roll back any current tariffs. He also said, “We have to make the right deal for the farmers, manufacturers, for everybody. And if we don’t make that right deal, we’re not going to make a deal.”
Chinese economic data from the weekend showed continued weakness in Chinese economic growth. China’s producer price index (PPI) fell the most this October since July 2016. Additionally, Chinese car sales fell for the 16th consecutive month. Both data sets suggest China’s domestic growth continues to slow down as a result of the US-Chinese trade war.
Overall Indian cotton season seems to be gearing up with good arrivals and domestic/export trading activities, Hope November will give a better push to Indian cotton trading activities.
(Vimal Verma is a Cotton Trader)