Cotton on MCX settled up by 0.58% at 20770 on supply concerns as output is expected to fall in the domestic market. India's cotton productivity has dropped in recent years owing to worm infestations hurting quality of the crop. Cotton output in the domestic market is expected to slip to 34.2-34.6 million bales in 2016-17 according to estimates of Southern Indian mills Association from 39.8 million bales in 2013-14. Additionally, in 2017-18, mills consumption is seen at 30.1 million bales, marginally higher from 2.99 million bales in 2016-17. However, exports are seen rising to 5.8 million bales from 5 million bales. Chinese cotton imports will remain suppressed next season, as the government continues to draw down on cotton stocks, while production recovers, US officials said. The US Department of Agriculture's Beijing bureau noted that Chinese government's priority remains "to ease the burden of its large cotton stocks following years of state cotton purchases".The bureau reports estimates from industry sources that government cotton sales could reach 3.79m tonnes in 2017, up from 2.66m tonnes. Chinese government sales were seen drawing down stocks, from 12.67m tonnes, to 8.90m tonnes by the end of 2017-8. The bureau suggested that "industry observers believe that China could very well succeed in reducing its state cotton reserves to 5m tonnes by the end of 2018." Technically market is under short covering as market has witnessed drop in open interest by -4.35% to settled at 6946 while prices up 120 rupees, now Cotton is getting support at 20670 and below same could see a test of 20570 level, And resistance is now likely to be seen at 20850, a move above could see prices testing 20930.

Trading Ideas:

Cotton trading range for the day is 20570-20930.

Cotton prices gained on supply concerns as output is expected to fall in the domestic market.

India's cotton productivity has dropped in recent years owing to worm infestations hurting quality of the crop.

Cotton output in the domestic market is expected to slip to 34.2-34.6 million bales in 2016-17 according to estimates of Southern Indian mills Association.

Cotton prices in spot market dropped by 110.00 rupees and settled at 20780.00 rupees.