NCDEX Kapas futures (Apr 2024) down 1% last week and witnessed some recovery from lower levels.
KS Commodity Insight
Riteshkumar Sahu,
Analyst, Kotak Securities
NCDEX Kapas futures (Apr 2024) down 1% last week and witnessed some recovery from lower levels. There is forecast of lower than expected production in the coming season due to lower area but improved carry-over stocks keeping prices under control. For 2022/23, CAI revised higher cotton output to 318.90 lakh bales from 311.18 lakh bales earlier. India’s cotton exports are estimated to have dropped to 18-year low of 15.50 lakh bales in the 2022-23 season. CAI has retained its domestic consumption estimate at 311 lakh bales for 2022-23 season. The carry-over stock is now estimated to be higher at 28.90 lakh bales vs 23.18 in earlier estimates. Cotton supplies in India this season (Oct-Sep) have crossed 355 lakh bales, according to CAI data compared to 350.18 lakh bales predicted earlier. As per govt. data, the area under cotton this kharif is down 3.00% y/y at 123.90 lakh ha Vs 127.80 lakh ha. In Oct WASDE report, there is no changed in production and consumption. Howecer, production forecast is at 25 million bales down 3.85% from last year.
Domestic use is 24 million bales which is higher by 2% y/y. Imports this month is unchanged at 1.3 million bales down 24% y/y while exports forecast at 2 million bales up 82% y/y.
NCDEX Kapas trading above the 20-day moving average. Now the support at 1620 levels while resistance at 1660 levels. We expect cotton to trade in sideways to higher on reports of lower production. However, sufficient stocks in the domestic and lower exports of cotton may limit price rise.
ICE Cotton (Dec) slipped to 7-weeks low last week but recover on Friday tracking surge in crude oil prices and poor crop conditions in U.S. sparked supply worries.
WASDE report cut U.S. production by 2.4% at 12.8 million bales as it slipped to 4th position in cotton output for the first time losing to Brazil. US cotton ending stocks are the lowest in six years, but world stocks are not, and this should limit the upside for prices going forward. Weekly US net sales reported 43,400 running bales for 2023/2024, down 82% w/w and 63% from the prior four-week average. A strong Brazilian crop and reports that China is importing Australian cotton again after a 2-year suspension have US exporters concerned. The USDA weekly crop progress report saw 32% of the cotton crop was in good to excellent condition compared with 30% last week. Brazil 2023/24 cotton (lint) output seen at 3.002 million tonnes vs 3.169 million tonnes in 2022/23 as per the government's crop agency Conab in the first forecast report for the 2023/24. Globally, the cotton industry is grappling with reduced production and consumption.
