Benchmark cotton futures recovered for a near-steady close Thursday when mill
buying emerged after an initial price retreat with a wide range of commodities
due to renewed concerns about the economy.
The December contract, which has the majority of the open positions, rose a
mere 0.07 cent, or 0.1%, to settle at 76.45 cents per pound on ICE Futures U.S.
Cotton had a wide range, initially rising overnight on buying by mills, as
well as speculators using the prior-day's retreat as a buying opportunity, said
Sharon Johnson, senior cotton analyst with First Capitol Group in Atlanta.
Then the market tumbled, some of on selling by speculators.
"We were down as we come to the realization that U.S. production is looking
very good, in part because of the higher planting number that came out
yesterday from USDA," Johnson said.
The U.S. Department of Agriculture reported Wednesday that the number of
acres planted in cotton totaled 10.9 million, up 19% from the year before and
higher than the 10.51 million estimated in a March planting-intentions report.
Furthermore, weather conditions have been "ideal" for the crop so far, said
Boyd Cruel, senior softs analyst with Vision Financial Markets.
Meanwhile, several analysts said, cotton was under pressure for much of the
session with other commodities, such as crude oil and copper, due to worries
about the global economy.
The official Purchasing Managers Index in China, a large commodity consumer,
fell to 52.1 in June from 53.9 in May. U.S. weekly initial jobless claims rose
13,000 to 472,000, when the expectation was for a 2,000 decline. Also, the
Institute for Supply Management's U.S. PMI slid to 56.2 in June from 59.7, when
a smaller decline to 59 was expected.
Cotton then became choppy during the last couple hours of the session, with
buying from mills eventually enabling the market to stabilize, Johnson said.
Mills appear to be buying in advance of what they did in recent years to avoid
being caught short later in the year, she said.
Other traders bought to cover, or exit, short positions in which they
previously sold.
Cotton also stabilized around a couple of technical chart support areas,
Johnson said. The December contract's low of 75.17 cents a pound was not far
from the 200-day moving average of 74.97.
Also, Johnson said, this area was not far from the 38% Fibonacci retracement
of the rally from the February low to the June high. This chart level lies
around 75.64, she said.
However, one other technical indicator portends some weakness. The market
closed below its 50-day moving average, which lies at 77.72 cents, for the
second day in a row.
Meanwhile, the nearby July cotton contract settled with a loss of 1.38 cents,
or 1.7%, to 81.22 cents. Johnson said "I wouldn't make anything" out of the
activity in this thinly traded contract, which as of Wednesday had a mere 997
open positions, compared to 128,473 in December. Most participants left in the
July contract, which is already past first-notice day, presumably plan to take
or make delivery. Or, participants may have exited to buy other contracts
cheaper or else undertake spread trades, Johnson said.
ICE daily cotton stocks decreased by 41,843 500-pound bales Wednesday, with
1,082 bales awaiting review, according to exchange data.
ICE cotton open interest-the number of active positions left at the end of
the session-increased by 209 positions Wednesday to total 164,188.
Electronic volume as of 2:30 p.m. EDT (1830 GMT) Thursday was estimated at
19,878 lots. In floor-options trading, there were approximately 3,501 calls and
3,211 puts, according to exchange data.
Close Change Range
July 81.22c dn 1.38c 80.32c-82.75c
Dec 76.45c up 0.07c 75.17c-77.26c