ICE Cotton Surges Amidst Short Covering and Weather Concerns: Market Analysis
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- Published: Friday, 24 May 2024 11:03
In the realm of commodity trading, ICE cotton witnessed a second consecutive trading session of gains on Thursday, propelled by a myriad of factors including short covering, weather anxieties in key producing regions like the US and Brazil, and a moderately encouraging export sales report. However, despite these positive developments, external influences continued to cast a shadow over the cotton market.
According to insights from trade analysts, the July contract for US cotton surged by 3 percent, settling 234 points higher at 81.72 cents per pound (0.453 kg). This uptick propelled the contract to reach a one-month high, touching as high as 82.60 cents, the highest level since April 23. Simultaneously, the December contract climbed to 78.63 cents, marking an increase of 134 points on Thursday.
A strengthening US dollar, evidenced by the dollar index settling above 105 with gains, posed challenges by making cotton purchases more expensive for foreign buyers. Additionally, weakness in crude oil prices, attributed to sluggish demand and negative data, contributed to the decline in cotton prices.
The trading landscape experienced a notable improvement, with trading volume reaching 72,576 contracts, the highest recorded for the current month. This surge in activity was primarily driven by traders covering their short positions, thereby amplifying the gains. Notably, ICE data indicated that certified stock slightly decreased from 191,566 bales to 191,522 bales.
The USDA's weekly export sales report revealed a net increase of 203,000 bales in US cotton export sales for the current market year. China emerged as the primary destination, with export shipments reaching 204,100 bales. The surge in new and aged cotton export sales to China, along with continued buying, alleviated pressure on cotton prices.
Reports of production losses in Brazil and China further fueled the price surge. Flooding in Brazil raised concerns about crop planting, while excessively wet conditions in the US provided additional support to cotton markets. Consequently, cotton traders are closely monitoring global weather conditions and speculative movements.
On Friday, ICE cotton for July 2024 experienced a slight downturn, trading 0.32 cents lower at 81.40 cents per pound. Nonetheless, the contract had witnessed a consistent rise in the preceding session. Cash cotton was traded at 77.97 cents (up 2.84 cents), the October (new crop) contract at 79.62 cents (up 1.34 cents), the December 2024 contract at 78.29 cents (down 0.33 cents), the March 2025 contract at 79.73 cents per pound (down 0.30 cents), and the May 2025 contract at 80.91 cents (down 0.33 cents).
In summary, the recent surge in ICE cotton prices, driven by short covering and weather-related concerns, reflects the intricate interplay of various market factors. While challenges persist, including unfavorable external influences, the market remains dynamic, with traders closely monitoring developments to navigate effectively in the ever-evolving landscape of cotton trading.