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Informist, Monday, Aug 12, 2024

 

MUMBAI – Cotton prices are on the verge of a potential upward bounce after declining 35% since the end of February, according to a research note from Kedia Advisors. Cotton prices have been under significant pressure as the commodity is highly oversold and undervalued, Amit Kedia, director at Kedia Corporate Advisors Pvt Ltd, said.

 

Cotton prices are currently testing key resistance levels and a break above these levels could confirm the beginning of a new uptrend, potentially reversing the sharp declines observed over the past several months, the report said. Cotton prices have been at extreme levels for several weeks and this condition typically precedes a correction towards more normal levels, the note said. Today, cotton candy September futures are at 56,300 rupees per candy on the Multi Commodity Exchange, while cotton candy spot prices are currently at 56,560 rupees per candy. 

 

From a technical standpoint, as of Tuesday, net short contracts for cotton futures on the Intercontinental Exchange were at 54,942, according to the Commitments of Traders report of the US Commodity Futures Trading Commission. This level has not been seen since Aug 6, 2019, and this positioning is reminiscent of the situation in 2019 when cotton prices rallied by over 21% in the subsequent months, the report said. Hedge funds have added nearly 150,000 net short contracts in just five months, underscoring the extreme bearish sentiment that often precedes a market reversal.

 

The percentage carry yield for the crop, which reflects the one-year calendar curve yield as a percentage of the contract notional value, is near its lowest level in the past year, indicating the potential for a market reversal, the note said. A 10-12% drop in cotton cultivation in the country due to lower crop yields and reduced planting areas is further likely to aid prices. 

 

Cotton acreage in Gujarat and parts of north India has seen a substantial decline, with farmers shifting to more lucrative crops such as oilseeds, market participants have said. Pink bollworm infestation and irregular rains have also negatively affected cotton yields in Gujarat. The fall in acreage in Gujarat, India's top cotton-producing state, is expected to lead to a sizeable loss of output at the national level. As on Aug 2, the acreage under cotton was at 10.8 mln ha, down 8.3% from a year ago, according to data from the ministry of agriculture and farmers' welfare.

 

End

 

Reported by Taniva Singha Roy

Edited by Namrata Rao

 

 

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