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COTTON

Key Highlights

* The US Department of Agriculture has scaled down its estimate for global production of cotton in 2021-22 (Aug-Jul) to 118.9 mln bales (1 US bale = 218 kg), compared with 119.4 mln bales projected a month ago. The downward revision in global production estimates is mainly due to a likely lower crop in China. Recent surveys indicate lower-than-expected area under cotton in southern Xinjiang. Global cotton consumption is seen at 122.5 mln bales in 2021-22, compared with 121.5 mln bales in the previous month. Consumption is seen higher due to a likely rise in demand from China, Bangladesh, and Turkey. Global exports are estimated at 46.6 mln bales compared with 45.5 mln bales a month ago. The agency has lowered its 2021-22 global ending stocks estimate to 89.3 mln bales, against 90.9 mln bales projected a month ago. The output in Indiais maintained at 29.0 mln bales in 2021-22. Consumption for India has been marginally lowered to 25.0 mln bales compared with 25.5 mln bales estimated in May. In the US, production is seen at 17.0 mln bales in 2021-22. The average price for the US upland cotton for 2021-22 is seen steady at 75 cents a pound.

* Government has increased the MSP of Kharif crops for marketing season 2021-22, to ensure remunerative prices to the growers for their produce.

* The International Cotton Advisory Committee, in its May report, has scaled up its global ending stocks estimate for 2020-21 (Aug-Jul) to 22.1 mln tn from 20.9 mln tn projected in April. The revised estimate for ending stock is mainly due to bigger crop in India and China. India will lead global production at an estimated 6.3 mln tn for 2020-21. China is expected to be the second largest producer with 5.9 mln tn. Global production for the ongoing season is estimated at 24.6 mln tn, against 24.1 mln tn projected a month ago. The committee has marginally raised its global consumption to 24.97 mln tn from 24.54 mln tn a month ago due to rise in demand from China, India and Turkey. Global exports are seen higher at 9.8 ln tn, compared with 9.5 mln tn a month ago. The committee has revised upwards its price forecast for Cotlook A index, a global benchmark for prices of raw cotton, by 1% from the previous month to 80 cents per pound.

* The UK-based Cotton Outlook has scaled up its estimate for global output in 2020-21 (Aug-Jul) by 145,000 tn to 24.2 mln tn. The estimate in the April report has been revised upward largely because production in China, Brazil and Australia is expected to be higher. For the current season, the agency has maintained its crop estimate for at 6.1 mln tn. Production in the US is seen at 3.2 mln tn. Global cotton consumption in 2020-21 is seen at 24.8 mln tn, against 24.9 mln tn projected the previous month. Consumption is seen marginally lower due to a fall in demand from Indonesia. Ending stocks of the fibre for 2020-21 are seen at 624,000 tn, against 814,000 tn projected last month.

* The Cotton Association of India has maintained its export estimate for the ongoing 2020-21 (Oct-Sep) season at 6.0 mln bales (1 bale = 170 kg).In the current marketing year, India has shipped around 4.3 mln bales till March, the association said in a release. The association has also maintained its estimate for ending stocks at 10.6 mln bales. Domestic consumption is seen at 33.0 mln bales in 2020-21, while imports are seen marginally lower at 1.1 mln bales against 1.2 mln bales estimated a month ago. The association has raised its production estimate for the year marginally to 36.0 mln bales, against 35.9 mln bales a month ago. Of the total crop, around 32.7 mln bales have arrived in markets across India till March.

* India's cotton exports are likely to be 20% higher at 1.02 mln tn in 2020-21 (Oct-Sep) backed by its competitive pricing in the global markets and an improvement in international cotton consumption, ratings agency CARE Ratings said. Higher exports along with a recovery in domestic cotton demand will help reduce the surplus availability of cotton in the country despite higher supply, the rating agency said in a report.

* In the Union Budget for 2021-22 (Apr-Mar), Finance Minister Nirmala Sitharaman proposed customs duty of 5% on cotton and 10% on cotton waste. She also proposed an Agriculture Infrastructure and Development Cess of 5% on cotton, taking the overall customs duty to 10%. Customs duty on raw silk and silk yarn or yarn spun from silk waste has been increased to 15% from 10% earlier.

* The area under major kharif crops so far in 2020-21 (Jul-Jun) was at 111.7 mln ha, up nearly 5% from a year ago, farm ministry data showed. Farmers have sown cotton across 13.04 mln ha in the 2020-21 (Jul-Jun) season, up by 2.1% from a year ago, as of 25th Sept., farm ministry. India's cotton output in the 2020-21 (Oct-Sep) marketing year is seen at 38.0 mln bales (1 bale = 170 kg), up 4% on year, according to traders. Govt. pegs 2020-21 cotton crop at 37.1 mln bales vs 35.5 mln bales. While, according to Cotton Advisory Board, India's cotton output in the 2019-20 season is projected at 36.0 mln bales (1 bale = 170 kg), compared with 33.0 mln bales a year ago.

* The government has raised the support price of medium staple cotton by 260 rupees per 100 kg to 5,515 rupees, and that of long staple by 275 rupees to 5,825 rupees.

* The government has increased the maximum sale price of Bollgard II cotton seeds for the next financial year starting Thursday by 5%. According to a notification, the government has revised prices of 450 gm packets of Bollgard II to 767 rupees a packet from 730 rupees this financial year. However, it has kept the price of the Bollgard I variety of cotton seeds unchanged at 634 rupees a packet.

Commentary on Cotton

July month delivery cotton no:2 traded lower in the last week due to weak exports from the largest exporter, U.S. The USDA has reported net cotton exports of 108,189 bales (1 US bale = 218 kg) for the last week on June 3, compared with 180,765 bales the previous week. However, major fall is limited due to slow pace of sowing in U.S. Cotton sowing in the US had been completed in 71% of the estimated area as on June 6, compared with 76% during the same period last year. US producers planned to crop cotton across 12.04 mln acres in 2021-22. The USDA has scaled down its estimate for global production of cotton in 2021-22 (Aug-Jul) to 118.9 mln bales compared with 119.4 mln bales projected a month ago. Whereas, June MCX cotton prices also nosedived from the recent from record highs as expectation of normal monsoon led to good sowing during this season. However, pick up in demand after reopening of lockdown in various states from textile and garment units is likely to support prices.

Technical Chart –ICE July Cotton

Technical view

Major trend remains positive as long as prices stays above $84 levels. But, prices is required to clear the resistance of $91 to continue current upside momentum towards $93 and then to $96.5 or even higher to psychological level of $100. Meanwhile, weekly (RSI) is treading higher suggesting bullish moves in the near term. But, major weakness is seen once it clears the downside support of $77 levels.

Technical Chart –MCX June Cotton

Technical view

Even though the major trend is more likely to positive, if prices slips below 23620 could see a downside corrective moves targeting 23400/23150 or even lower to 22600 levels. Moreover, weekly RSI (14)s is treading lower suggesting a weakness in the near-term. However, a direct rise above 24750 could see a continuation of major upside moves.

Technical View –NCDEX July Cocudakl

* Prices is likely to continue bearish moves targeting 2800/2770/2700 levels. However, major weakness is seen below 2600 regions.

* Moreover, Weekly RSI (14) is treading at 68 indicating profit booking in the near term.

* However, a direct rise above 2900 could see short covering rallies to 2945/3040 levels

Fundamental outlook

* The most active July cotton seed oil cake settled the last week in lower note on back of profit booking after a recent rise in prices. Moreover, forecast of normal monsoon during this season and gradual distribution of monsoon towards northern regions weighed on prices on back of pick up of cotton sowing in coming days. Weakness in spot market due to poor demand also pressurizing the prices.

* The US Department of Agriculture has scaled down its estimate for global production of cotton in 2021-22 (Aug-Jul) to 118.9 mln bales (1 US bale = 218 kg), compared with 119.4 mln bales projected a month ago

* The CAI has raised its production estimate for the year marginally to 36.0 mln bales, against 35.9 mln bales a month ago. Of the total crop, around 32.7 mln bales have arrived in markets across India till March.

* Farmers have sown cotton across 13.04 mln ha in the 2020-21 (Jul-Jun) season, up by 2.1% from a year ago, during 2020-21., according to farm ministry. India's cotton output in the 2020-21 (Oct-Sep) marketing year is seen at 38.0 mln bales (1 bale = 170 kg), up 4% from the previous year, according to market sources.

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