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All you need to know about Cotton this week.

Textile Raw materials market
Spot rates of cotton finally started moving up at Karachi increasing by Rs300 per 37.324 kg to close at Rs 19,300 per maund on Thursday (April 06). The cotton market though remained steady throughout the week but trading volumes did improve.

The rate of cotton in Sindh ranged between Rs17000 to Rs20000 per 37.324 kg. In Punjab, the rates were between Rs18000 to Rs20000 per 37.324 kg. The rate of Phutti in Sindh was Rs 5500 to Rs 8300 per 40 kg. The rate of Phutti in Punjab was Rs6000 to Rs8500 per 40 kg.

1001 bales of Rahim Yar Khan were sold at Rs18500 to Rs19800 per 37.324 kg, 400 bales of Haroonabad were sold at Rs19000 per 37.324 kg, 1200 bales of Dherki were sold at Rs20000 per 37,324 kg, and 100 bales of Multan were sold at Rs19350 per 37.324 kg. Polyester Fiber was available at Rs 373 per kg.

The final data released by Pakistan Cotton Ginners Association states that Pakistan country produced 34 percent less cotton this year as compared with the crop yield last season. The final figures for the crop year 2022-23 reveal that the country produced 4,912,069 bales, the lowest in around four decades, of cotton against 7,441,833 in the 2021-22 season, a year-on-year decline of 2,528,764 bales or 34pc loss.

The shortfall in cotton production means that the textile industry will have to import around 10 million bales to cover the shortage. This expected consumption looks optimistic given the mill consumption of only 8.8 million bales in the year 2022-23, which was the lowest in the past two decades. The low consumption last year was mainly due to severe import financing issues. The textile mills have so far signed import agreements for 5.5m bales according to market sources, whereas they have purchased 4,605,449 bales from the local market. Last year, the mills bought 7,332,000 bales from the domestic market.

According to the International Cotton Advisory Committee, it has been paying close attention to the Indian cotton sector in the last few months as India has the largest planted area and second-highest lint production in the world. The Secretariat projected India’s crop to be 5.2 million tons, after revising downward by 391,000 tons in December and 257,000 tons more in February.

It was noted that the arrival numbers have been unusually low, possibly because farmers — who so recently enjoyed near-record-high prices — are holding onto their cotton in the hope that prices, which have dropped recently, start to trend upward again. The pace of arrivals did pick up in March, however, and prices have stabilized slightly over the past few weeks so farmers may be starting to realize that accumulated debt will start to outpace any additional income they might gain by holding their cotton.

The Secretariat projects global consumption at 24.55 million tons and consumption at 23.8 million tons. Its current price forecast of the season-average A index for 2022/23 ranges from 99.8 cents to 122.12 cents, with a midpoint of 103.71 cents per pound.

In the US market, weekly export sales reports showed healthy demand and strong shipments. There was little change in drought conditions across Texas, Oklahoma, and Kansas. The 2023/24 season USDA prospective plantings showed U.S. cotton acres at 11.256 million acres.

After hitting a five-month low, cotton futures bounced back to finish the week on a high note. Cotton futures continued last week’s sell-off going into the weekend but recovered upon slightly more optimistic macroeconomic news and a weaker dollar. May futures went limited up two days, posting strong gains early on. Although prices flip-flopped to finish the week, cotton futures closed higher for four consecutive sessions. May futures closed at 83.50 cents per pound, up 592 points from the week prior. Total open interest continued to increase, gaining 1,702 contracts to finish at 198,792.

The ever-present concerns about the overall global economy and the Fed pausing interest rates kept financial markets mixed throughout the week, a pleasant change from the recent extreme volatility witnessed. Despite the strong economic data received throughout the first quarter, outside markets performed better than anticipated. The S&P 500 rose 5.5% in the first quarter, the NASDAQ climbed 15%, while the Dow fell just 0.9%. The Dollar Index was down most of the week, helping boost commodities in general.

The Export Sales Report showed another week of healthy demand for U.S. cotton. A net of 281,300 Upland bales for the current crop year and 12,300 for the new crop year were booked for the week. The biggest buyers for the week were led by China, which purchased 85,000 bales, followed by Vietnam with 78,200 bales, Bangladesh with 38,300 bales, Pakistan with 24,900 bales, and Turkey with 19,000 bales. Shipments continued at a steady pace, with 341,000 bales exported, staying above the average pace needed to reach the USDA export estimate of 12.0 million bales. Pima sales were solid for the week, with 10,100 bales sold for the 2022/23 crop year. Shipments increased slightly to show exports of 7,400 bales.

Where the weather is concerned, not much has changed across Texas, Oklahoma, and Kansas this past week. There were scattered storms throughout West Texas, Kansas, and Oklahoma but the typical dry, windy conditions prevailed. South Texas, on the other hand, received precipitation throughout the week. It was not necessarily an adequate amount, but we will never turn down rain. Scattered storms are forecasted in the coming week, which will hopefully bring along much-needed moisture.

The release of USDA’s Prospective Plantings report dominated many traders’ focus this week. The report is based on survey responses taken in early March and helps give a much-anticipated view of what the upcoming crop year will look like acreage-wise. For 2023/24, the total planted cotton acreage is set to decrease by 18% from the year prior, totaling 11.256 million acres. Texas will plant 6.2 million acres of Upland cotton and 35,000 acres of Pima. Oklahoma’s planting intentions showed 530,000 acres and Kansas showed 115,000 acres. This brings the Southwest to a total of 7.195 million acres of cotton intended to be planted.

Now that we have the first USDA estimate of what cotton acreage in the U.S. will look like next season, it is back to the usual business. It is about time for traders to begin rolling their positions from May to June, so heavier position flows are expected in the coming weeks. Other than that, the normal Export Sales Report and macroeconomic data will continue to be monitored.
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