A European rescue package that improved sentiment in equities, the euro and
other commodities also enabled cotton futures to rise Monday.
Nevertheless, the commodity remained within its recent range as traders
pondered the amount of certified warehouse stocks and at what price levels
China would be willing to buy. On Tuesday, all eyes will be on a crop report
from the U.S. Department of Agriculture.
Cotton for July delivery rose 0.33 cent, or 0.41%, to settle at 81.04 cents
per pound on ICE Futures U.S.
"We rose with [almost all of] the other commodities. The market exhaled with
regard to the rescue package in Europe," said Peter Egli, director of risk
management at Plexus Cotton Ltd. in Phoenix.
Shortly after cotton closed, the Dow Jones Industrial Average rose by around
365 points and the Continuous Commodity Index gained 4.37 points.
These markets climbed when risk sentiment improved after euro-zone officials
agreed to a EUR750 billion ($955 billion) bailout plan for debt-laden European
nations. The program includes EUR400 billion of loans from euro-zone
governments, EUR60 billion from a European Union emergency fund and EUR250
billion from the International Monetary Fund.
Furthermore, the European Central Bank agreed to buy euro-zone national
bonds, while the U.S. Federal Reserve said it would reopen swap lines with
other central banks to ensure they had ample access to dollars.
The news undercut the dollar, which tends to help commodities generally by
making them less expensive in other currencies. The June dollar index fell
0.274 point to 84.385. Still, the dollar index was well up from its earlier
83.070 low, and one trader said its recovery from the bottom prompted a number
of commodities to pare some of their earlier gains.
Egli also cited some cotton-specific factors limiting the upside for the
range-bound commodity, with left the July contract in a band of 79.80 to 82.50
cents in the last four trading sessions, In fact, Monday's band was contained
within Friday's range, which is referred to as an "inside day" on a daily chart
and often considered a sign of short-term market indecision.
Traders appeared reluctant to push the upside too heavily, with ICE certified
bales in storage still numbering more than 1 million, Egli said. There also
might be some uncertainty at how high of prices China will be willing to buy,
he said.
Tuesday's release of USDA data will provide the first glimpse of 2010-11 U.S.
cotton output since preliminary estimates were issued in February.
"It's important because it's the first look at the new crop," represented by
the December futures, Egli said. Thus, the report will be closely eyed by
"headline traders" in particular, he said.
On average, analysts surveyed by Dow Jones Newswires look for a crop size of
16.6 million bales, up from 12.15 million for 2009-10.
However, analysts expect a lower planted cotton area in China for 2010-11 as
the government there encourages farmers to plant grains this season.
ICE cotton open interest-the number of active positions left at the end of
the session-decreased by 2,007 positions Friday to total 175,455, according to
exchange data.
Electronic volume as of 2:30 p.m. EDT (1830 GMT) Monday was estimated at
12,594 lots. In floor options trading, there were approximately 1,271 calls and
3,567 puts, according to exchange data.
Close Change Range
July 81.04c up 0.33c 81.01-82.16
December 76.40c up 0.73c 76.06-76.67