By Carolyn Cui
Cotton prices surged Monday as a small amount of cotton at the exchange's warehouses is up for grabs as the front- month contract is about to expire.
Prices jumped 2.7% in the May contract, which entered the notice period for deliveries on Monday, to close at 64.77 cents a pound at the ICE Futures U.S. exchange. Trading around deliveries dominated the price moves, with the most active July contract up 0.6% to settle at 64.04 cents.
"Someone got caught short and they don't have the cotton to deliver," said Nick Gentile, managing partner at Nickjen Capital, a commodity trading company. Traders who are selling cotton short would have to buy back the contracts or they could face notices to physically deliver the cotton.
Some of the exchange cotton already was spoken for. Term Commodities had issued a notice of delivery for 41 contracts of cotton, with Macquarie Futures, BNP Paribas Prime Brokerage and ADM Investor Services on the hook to ship the cotton, according to the exchange.
Despite the activities around the May contract, cotton prices were largely weighed down by the weaker import demand from China. The world's largest cotton user last week posted a 53.2% decline in its cotton imports during the first quarter. Moreover, China is expected to restart selling cotton from its state reserves later this month. China sits on the world's largest cotton storage.
Commodities were buoyed over the past month or so by the looser monetary policies implemented by central banks around the world, driving prices off their fundamentals. Most agricultural commodities are still expected to be in surplus this year, making the loftier prices look vulnerable to a near-term correction. Commodity exchanges in China over the weekend raised margins on certain products, including cotton and corn, in a bid to curb speculation.
In the cotton market, noncommercial traders were net long 23,297 contracts as of April 19, an increase of 26,643 contracts, which represented a change from a net short to net long, according to U.S. government data.
