TECHNO FUNDA REPORT ON

COTTON4thSeptember,2019

( October )

Ininternationalterms,theChinaCottonIndex(CCIndex3128B)decreasedfrom94to88cents/lbbetweenmid-Julyandearly

August.Indomesticterms,valuesdroppedfrom14,200to13,600RMB/ton. Overthesameperiod,theRMBdeclined2.7%

againsttheUSD(from6.87to7.05RMB/USD).

Indiancottonprices(Shankar-6quality)fellfrom82to75cents/lbininternationaltermsandfrom43,900to41,700INR/candy

domestically.Overthesameperiod,theINRdeclined3.4%againsttheUSD(from68.5to70.8INR/USD).

History

Lastmonth,cottonbenchmarkpricesdecreasedoverthepastmonth.TheNYDecembercontractsetnewlife-of-contractlowsin

droppingfrom63to58cents/lbbetweenmid-JulyandearlyAugust.NYfutureshadnottradedbelow60cents/lbsince2016.The

CotlookAIndexfellfrom74to70cents/lbfrommid-JulytoearlyAugust.

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Yearly price movement of Cotton (MCX) & Cotton (ICE)

One Year of Daily A Index and NY Nearby Prices

Source:CottonInc.

3

•Onthedemandside,MY2019/20millconsumptionremainsweakasmillsaccumulategreatercottonyarnstocksduetopoor

demand.Exportprospectshavediminishedwhileimportsareexpectedtoremainstableastheyarepricecompetitiveagainst

domesticsupplies.

• PlantingisunderwayinSouthernIndia(AndhraPradesh,Telangana,KarnatakaandTamilNadu)wheresowingprogressis

fivepercenthigherthanlastyearandisexpectedtoremainhighduetohighcottonprices.

•Itisestimatedthatslightlyloweryieldsat497kilogramsperhectare.

•Farmerplantingdecisionsareprimarilydrivenbytheirexpectedpricerealization.Assuch,highfarm-gatecottonprices,and

higherminimumsupportpriceswillencouragehighercottoncroparea.

• USDAForeignAgriculturalServiceestimatesmarketingyear(MY)2019/20India’scottonproductionat29million480lb.

bales(37.1million170-kilogrambales/6.3MMT)withaplantingareaof12.7millionhectares.

Domesticmarketsupplysidefundamental

•ThebeginningstockforMY2019/20isestimatedat9.7million480lb.bales(12.5million170kgbales/2.1MMT).Thisstock

leveladjustedfortheIndianmarketingyear(Oct/Sep)isroughlyequivalentto5.9million480lb.bales(7.6million170kg

bales/1MMT).ThesestocklevelsalsoincludethestocksheldbygovernmentagenciessuchastheCottonCorporationofIndia

(CCI).

•ShipmentsfromtheUnitedStatesandEgyptcontinuetodriveupbulkimportvolumes.

• AccordingtotheweeklyplantingprogressreportpublishedbytheMinistryofAgricultureandFarmersWelfare(MOAFW),

cottonplantedareaacrossthecountryhasreached12.49mlnhasofarvs11.76mlnhayearago.

• PlantinginCentralIndia(Gujarat,MaharashtraandMadhyaPradesh)isthreepercenthigherthanlastyear,whileNorthern

India(Punjab,HaryanaandRajasthan)sawa19%increaseincottonarea.Variousinitiativesofthestategovernmentsof

PunjabandHaryanatolimitplantingofpaddyriceduetoitselevatedwaterrequirementhasledtoincreasedcottonarea.

Source:CottonInc.

One Year of Daily Indian Spot Prices (Shankar-6 Variety)

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• Theslowdowninthespinningsectorisevidentfromalargenumberofmillscurtailingtheiroperationsandaccumulating

moreyarnstocks.

• Thefallinyarnpricesduetoweakdomesticdemand,lacklusterexportmarketcoupledwithhighalternativefiberpricesis

negativelyaffectingtheprofitabilityofmanysmalltomedium-sizedmills.

• Indian cotton prices remain almost 5-6 cents higher than Cotlook A-Index. The differential between domestic and

internationalpriceshasnarrowedinthepastonemonthasglobaldemandhasalsoweakenedduetoslowdowninmajor

cottonconsumptioncountries.

• USDAForeignAgriculturalServiceestimatesMY2019/20cottonconsumptionat24.6million480-lb.bales(31.5million170-

kilogrambales/5.4MMT).

Domesticmarketdemandsidefundamentals

• TheIndiancurrencyhasalsodepreciatedbyfourpercentsincebeginningofAugustimprovingexportprospects,nonetheless

weakeneddemandislimitingthisexportopportunity.

• Averagedomesticwholesalecottonpriceshavefallenmarginallybylessthanonepercentfromlastmonthbutremainfive

percenthigherthanlastyear.

• DomesticyarnpriceshavealsofallenbysixpercentfromJuneonwardshighlightingtheweaknessindemand.

• MY2019/20exportsat4.2million480-lbbales(5.4million170-kilogrambales/914,000MT)sameastheofficialUSDA

estimate.

Domesticmarketinventories

Source:USDA

Source:USDA

• Nonetheless,exportsfellinallotherregionswithEastAsia(China)accountingforthemostsignificantdownturn.

• TradebarriersbetweenU.S&Chinaweighed2018/19exportsdownfromthepreviousyear.

• ShipmentstoeightofthetoptenmarketsfellwithChinawitnessingthelargestdecline.Despitehigherglobalimportsby

China,retaliatorytariffsonU.S.cottonallowedothermajorexporterstosupplantU.S.marketshare.

Internationalmarketfundamentals

• Despitelowerexportstomostmajormarkets,theUnitedState’stopmarket,Vietnam,continuedanotherpositiveyearof

growth.

• U.S.exportsareforecasttoexpandin2019/20withareboundingcropthat’sestimatedtogrowbymorethanaquarter.With

largerexportsprojected,theUnitedStatesisexpectedtohelpmeetgreaterglobaldemandin2019/20withVietnamimports

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Source:USDA

WeeklycropprogressofU.SCotton

Cotton condition continues to showweek-to-week shifts in ratings,moving to the positive side this pastweek. Cotton is rated

good/excellentin48%ofthecrop(up5%inthepastweek),likelyshiftingpercentagesfromthefaircategory,whichnowsitsat37%.

Cottonratedpoor/verypooralsoshowed2%improvementontheweek,movingto15%nationally.

• WithU.S.cottonproductionexpectedtosurpassdemandforthethirdconsecutiveseasonin2019/20,endingstocksareforecastto

increasefurtherto7.2millionbales,comparedwith2018/19’sestimateof5.25millionbalesand2017/18’sestimateof4.3million

bales.Asaresult,thisseason’sstocks-to-useratioisexpectedtoriseto35percent,thehighestsince2008/09.Consequently,the

2019/20uplandfarmpriceisforecastlowerat60centsperpoundfor2019/20,comparedwith2018/19’sestimateof70centsper

pound

• Onthesupplyside,ProductionintheUnitedStatesisraisedthismonthtothelargestsince2005/06at22.5millionbales,compared

withJuly’sprojectionof22.0millionbalesandlastseason’sfinalestimateof18.4millionbales.

• TheU.S.cottonyieldisforecastat855poundsperharvestedacrethisseason,9poundsbelow2018butabovethe5-yearaverageof

848pounds.

BasedontheSeptember3CropProgressreportfromUSDA,lessthan50%ofbollsinthosestatesarecurrentlyopen,withthestorm

projectedtomisseachstate’sprimarycottonproductionareas.Nationally,36%ofbollsarereportedopen–up8%inthepastweekand

9%ofthe5-yearaverageforthisdate.

Bollsetisallbutcomplete,with97%reportedacrosstheCottonBelt.Inall,14ofthetop15cotton-producingstatesareatorabove

their5-yearaverage.

(thetopU.S.market)expectedtobreakthepreviousyear’srecord.

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ManyofthecompetingcountriesaregainingaccessinvariousexportmarketslikeChina,SouthKorea,Turkeymainlyonaccount

ofthepreferentialaccessgiventothembytheimportingcountriesleadingtofurthererosionofIndia'smarketshare.While

VietnamhasincreaseditsexportsofcottonyarntoChinaby17percentduringthelastfourmonths,India'ssharehasdeclinedby

16percentduringthesameperiod.

Hence,takingintoaccountalltheabovenegativefactors,abearishtrendmayprevailovercottonpricesindomesticsas

wellasintheinternationalmarket.

Foresight

Goingahead&trackingthefundamentals,itisbeingforecastedthatwemayseeaweaknessincottonfutures(October)

19000-18680-18240&facingresistancenear19985levels.Thereasonbeingthatfresharrivalsareabouttohitthe

market&demandsideissluggishduetopoorperformanceofexports.Also,ontheinternationalmarket,cottonisfacing

pressureduetolackofclarityintheUS-Chinatradenegotiations,sendingthenaturalfiberdownforafifthstraight

month.Priceshaddroppedtoa3-1/2yearlowearlierthisweekandhavedeclinednearly20percentsofarthisyearas

theUS-Chinatradewarhurtsdemand.RecentrainsinTexas,amajorcrop-producingstate,aregivingaboosttocrop

conditionspreviouslyimpactedbyextremeheat.

Backathome,historically,CCImarketarrivalsfromAugusttoSeptemberaveragesaround406,000480lb.bales(520,000170-

kilogrambales)basedonaten-yearaverage,andaround460,000480lb.bales(589,000170-kilogrambales)basedonthefive-

yearaverage.

Exportsofcottontextilescontinuedtheirdownwardspiraldecliningby24.5percentduringApril-July2019.Theprovisional

dataforthefirstthreeweeksofAugust2019alsoshowsthatthe25percentdeclineinexportsiscontinuingmonthonmonth

basis.Asharpandprecipitousdeclineespeciallyofcottonyarnduringthelastfourmonthsbyabout35percenthasledtoacrisis

situationinthespinningindustry.Infact,themonthlyexportsofcottonyarnareata5yearlowof59-60millionkgs.Exportsto

majormarketslikeChinahavedeclinedby50percentandBangladeshby38percentandKoreaby45percent.

Inviewofthesharpdeclineinexports,thesectorisinaverycriticalsituationasmanyproductionunitsareshuttingdown.

Usuallythecashrichmillsstorecottonfortheiroperationsthatrunthroughouttheyear.However, if thecurrentsituation

persists,theymaybecompelledtorunonhand-to-mouthbasiswithoutbuildingtheinventory.

ThetextileindustryisbearingthebruntofUS-Chinatradewar.ThespinningmillsinMalwaregionarehavingatoughtimeasthey

arenotfindinganytakersforyarn,primarilybecausecountrieslikeBangladeshareofferingyarnatalowerprice.

Spotmarketupdate-Arrivals

Source:AGMARK

7

Source:MCX

Source:BarChartSource:BarChart

Source:CAI

Closingason:30thAugust2019

Closingason:30thAugust2019

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Source:BarChart

MCXCottonhasbeeninshorttermdowntrendwiththeformationoflowerhighsandlowerlows.Earlierthe

lowerlowwasat19520thekeysupportforbulls,whereaslowerhigh22540actasresistanceintheshortterm.

Cottonpricesbreakandsustainwellbelowthekeysupport.Asofnow,pricesarefallingbelowtheretracement

level78.6%ofthepreviousfallfrom22540to19520.Nowbearisinfullpowerandtarget18600-18200.Selling

onrisingadvisedinMCXCottonnear19700withthetargetof19200-18600.

Forward curve of Cotton futures (ICE)Technical analysis & recommendation

Source:SMCResearch

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Vandana Bharti (AVP - Commodity Research) Boardline : 011-30111000 Extn: 625 vandanabharti@smcindiaonline.com

Subhranil Dey Sr. Research Analyst (Agro) Boardline : 011-30111000 Extn: 674 subhranildey@smcindiaonline.com

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