Cotton Finishes with Triple-Digit Gains
Short-covering likely figured prominently in lifting December as much as the daily limit. Futures deemed too low relative to export cash prices. IndiaΆs crop estimated at record 29 million bales.
Cotton futures finished with triple-digit gains in heavy dealings after jumping as much as the 300-point daily limit Wednesday.
Spot December settled up 113 points to 77.07 cents, in the lower half of its 296-point range from 75.98 to limit up at 78.94 cents. It finished at a four-session high close on its largest daily gain since Sept. 27.
March settled up 116 points to 79.19 cents, trading within a 251-point range from 78.01 to 80.52 cents.
Volume jumped to an estimated 40,600 lots from 31,366 lots the previous session when spreads totaled 17,644 lots or 56%, EFP 556 lots and EFS 31 lots. Options volume totaled 5,946 calls and 5,182 puts.
Short-covering after a record 13 straight lower closes likely figured prominently in the rally. A narrowing of the December-March spread after it had traded out to or near full carry for some spawned early talk that a big long or longs might be planning to take December deliveries.
“It will take a few days to confirm — or not — if any rally from this point is an attempt to correct the grossly oversold condition before falling again or something more meaningful,” Sharon Johnson, senior cotton specialist with KCG Futures in Atlanta, said in a report after December rallied off a new seasonal low to close little changed on Tuesday.
The USDA reports on Friday, U.S. unemployment data for October and the last trading day for December options will provide fodder for the micro and macro picture, she said, as well as dealing with what she described as a miscellaneous event.
Over the past month, Oct. 3-Nov. 5, the drop in export cash prices as measured by the Cotlook A Index amounted to 77% of the decline in front-month futures on a closing basis, she said.
“The failure of cash to match futures is an indication futures are too low relative to export prices rather than the other way around,” Johnson said. She said she has been and remains of the opinion that a seasonal low is imminent and could already be in place.
Meanwhile, a U.S. agricultural attach report estimated IndiaΆs cotton crop at a record 29 million 480-pound bales, unchanged from USDAΆs September projection and up 9% from last season. India is the worldΆs second largest cotton producer, consumer and exporter.
The report — dated Oct. 31 and released Tuesday — said heavy rains and storms over the past few months across key growing areas have tempered optimism about the potential for a bigger crop.
Consumption remains strong and set a monthly record in August, the attach said. Mill use is projected at 23 million bales, also the same as USDAΆs last forecast and up from the attach estimate of 22.7 million bales in 2012-13.
“Many mills are covered through mid-November but will be seeking new crop supplies in earnest thereafter,” the report said. “Spinners continue to produce yarn to meet strong Chinese demand and growing domestic demand.”
Exports are forecast at 7 million bales, also the same as the USDA estimate and down from 7.7 million now estimated by the attach for last season. Indian prices have been high relative to international prices over the past few months, the report said, but have begun to drop as the pace of arrivals increases.
Futures open interest gained 595 lots Tuesday to 195,950, with DecemberΆs down 1,836 lots to 89,110 and MarchΆs up 1,214 lots to 78,230. Certificated stocks grew 11,437 bales to 172,000. Awaiting review were 37,510 bales.
The Cotlook A Index of world values was unchanged Wednesday morning at 84.25 cents. The premium to TuesdayΆs December futures settlement widened a point to 8.31 cents.
