Monsoon Progress to Continue Guiding Domestic Cotton Cake Markets

Cotton cake futures prices have been facing resistance in moving upwards since past 3-4 weeks, as the expensive price offers continued discouraging fresh buying in the physical markets. Occurrence of rains in producing areas of Maharashtra and Telangana also maintained the pressure on the futures market. 

However the buyers were willing to step in after every dip, since the broader price view remained bullish. As a result, the futures could easily sustain above and bounce from the intermediate support levels. The August contract settled the week lower by 2.3% and closed at 2871. In Akola spot market, prices of cotton cake were down Rs. 35 Rupees/qtl week on week. Last traded spot price was 2900 Rs/qtl.  In Kadi, prices during the weekend session were quoted near Rs. 2850/qtl, down nearly Rs.100 over the previous week.  

The tight supply situation in cottonseed is expected to continue in the coming months considering the stronger demand. Support seen as falling arrival numbers of raw cotton due to the lean supply season and thin stocks lying with ginners and farmers. The CAI has kept its consumption estimate for the current crop year at 330 lakh bale in the previous month. The chances of edible oil prices to remain firm are quite high therefore one can expect cotton wash oil prices to continue with the upward trend, hence there will be a higher demand for cotton seed for crushing purpose. The new season for cotton will start only in October. The probability of consumption of cotton cake shifting towards mixing in the animal feed rations has increased this year because of soy meal turning quite expensive over previous years. All in all, the demand-supply factors still indicate possibility for an upward price action in forthcoming weeks.  

The all India sowing area of cotton had reached 86.45 lakh hectares, as on July 9. The acreage was 104.83 lakh hectares during the corresponding period of last year. Sowing will increase in coming weeks subject to improvement in the rainfall intensity in states of Gujarat/ Maharashtra/ Karnataka, Andhra Pradesh and Telangana. Therefore monsoon related progress shall continue influencing the direction of the futures markets in coming days.

Technically the August contract has a strong support between 2820-2830 level and in case manages to sustain above this level then tendency for an upward bounce towards 2950/2975 is quite likely from weekly perspective. In case the monsoon progress improves next week then it will keep the upside price movements checked in futures as well as spot markets.