Written By Cindy Walters/Technical Portion By Doug Starr

Cotton futures participated in the negative broad market energy today, all of which was concerned over Japan’s crisis. For the most part markets were lower initially but many made a partial to full recovery as their sessions moved on. Cotton prices probably fell the hardest and that included a 700 point limit down move in the May, July and Dec. Those three months settled with May and July down the 700 point limit and Dec down 555 points. The other months settled from 77 to 465 points lower, except the Oct-11 settled 677 points lower.

Volume today was very misleading at 40,909 contracts. Only 15,874 contracts were traded on the screen and as always those included spreads which today’s volume was 2,679 spreads. The big chunk of volume was 24,026 EFS (Exchange Futures for Swaps). An EFS is typically a banking operation where the bank charges a fee to margin contracts for a period of time and that involves transferring ownership of the contracts back and forth on an EFS. It’s expensive, but it helps solve some cash flow problems. Just so you know, on February 18th there were 24,080 EFS trades, both days the most cotton’s ever had.

Today’s limit down move was first put in place in the May at 11:05 am New York and July followed one minute later. Both months traded at the limit and slightly below synthetically and July started trading off and on the limit just past 1:45 pm. Only 233 synthetic trades were done, 213 in May ranging from 19600 (-894) to 19785 (-709); and 20 in July all at 18500 (-825).

Synthetic Settlements:

May---11  19700 down 794 points

July--11  18575 down 750 points

Cotton actually had a two-sided session in May and July as gains were made in the first 10 minutes and values slid and stayed lower after that. Dec never made it above unchanged but it did make it to limit down a few times in the middle part of the session.

The May/July spread was the most active spread and it traded in a range of 1026 to 1192 points May premium on a volume of 1,619 spreads. July/Dec had the second biggest spread volume at 406 spreads and it traded in a range of 6200 to 6900 points July premium.

March-11 continued in its notice period and it began with an open interest of 290 contracts less today’s 209 notices. For tomorrow there will be 16 notices which brings total notices to 625. Not one bale has been stopped and redelivered this notice period. Wednesday will be the last notice day. Cert stocks began today at 204,512 bales with 22,532 bales awaiting review.

COTTON DELIVERY NOTICES  15-Mar-2011 

Options volume today was 6,588 contracts (calls 4,138/puts 2,450). Cleared Friday were 16,536 contracts (calls 9,673/puts 6,863). Very little was featured in options and the biggest trade appeared to be 400 Dec 125/135 call spreads at a 300 point debit. Volatilities finished with May around 55 percent; July 56 percent; and Dec 46 percent.

Today’s weekly spec/hedge report showed last week’s trading resulted in a net increase of spec shorts and a net decrease of hedge longs. Open interest decreased for the fourth time in the last five weeks but it was only down by 376 contracts to 174,908 contracts.

For the week ended March 11, 2011 in contracts:

Net Position: Spec Long/Hedge Short 9.3 percent (dn 1.6)

       Long            Pct              Short            Pct

Spec   74899 (dn 688)  42.8 (dn 0.3)    58567 (up 2097)  33.5 (up 1.3)

Hedge 100009 (up 312)  57.2 (up 0.3)   116341 (dn 2473)  66.5 (dn 1.3)

Technically, we are still watching for evidence that recent weakness is more than simply a correction, and so far there isn’t much evidence. Prices have not overshot even a short term 61.8% correction in either the May-11 or Dec-11 contracts. Dec remains the weaker of the two, and it settled right at its short term 61.8% correction. Further weakness in Dec would likely begin turning more of the work negative, and a move decisively below 11300 would seriously threaten the grip that the bulls have had on new crop for many months now. The situation isn’t quite as nervous for the bulls in the May contract, where all the moving averages still point up and today’s settlement was just above the 50% short term correction. Key short term support in May is 19000 (+). More important intermediate term support is still more than 20 cents lower at around 17500. Momentum in both crops is neutral.

Open Interest 174,908 down 117