NY cotton sets biggest daily gain as shorts cover

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* July, Dec cotton post biggest ever one-day percent gains

* Weekly U.S. export sales robust

* Chinese interest rate cut triggers short-covering

June 7 (Reuters) – U.S. cotton futures soared on Thursday and closed at their highs for a second day, with both July and December contracts logging their largest ever one-day percentage gains, as buyers raced to cover short positions taken out during May’s 20 percent price decline.

While a Chinese interest rate cut set Thursday’s advance in motion, speculative buyers in the United States rushed to cover short positions when it looked as if cotton’s day-earlier rally marked a trend turnaround.

On Monday, December futures tumbled to a contract low at 64.61 cents a lb and July set a contract low at 66.10. On Tuesday, December futures finished at their lowest close for a third position cotton contract since early October 2009.

All that changed on Wednesday when prices across the commodity spectrum rallied, including cotton.

“I think this could be a short-term bottom, maybe even medium-term if we’re going out a few weeks,” said Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta.

Benchmark December cotton on ICE Futures U.S. surged 3.92 cents, or 5.73 percent, to finish at the 72.28 cents per lb high, a level last seen on May 29.

December’s contract volume was a whopping 35,296 lots. Brokers said rollovers into December futures from July by funds were at least partly behind the hefty tally, along with short covering and pent up buying by commercial interests.

Spot July cotton ended at the 73.89 cents a lb high, which dates back to May 29, up the 4.00-cent limit, or 5.72 percent. Volume was healthy at 19,590 lots.

“Open interest is at a 17-month high. I think its because of short positions. You have to go back to early February of 2011 to find a higher level,” Johnson said, noting that index funds had been reducing commodity positions across the board.

“So, the increase came from trend following types, and speculative funds because they’ve been putting on a lot of shorts. And not just in cotton,” she said.

A build-up in open interest came from speculators who had been net short for four consecutive weeks and by commercial buyers, according to the CFTC’s weekly spec/hedgers report.

The U.S. Department of Agriculture reported cotton export sales of 205,800 running bales in the latest week when combining old crop and the crop for the coming year, more than needed for the USDA to meet its annual export projections. [ID: nIGB072878]

In other news, the USDA is likely move the release of its agricultural reports until later in the day following a move by leading exchanges to extend their trading days, USDA chief economist Joseph Glauber said in an interview.

While some traders would prefer USDA to release major reports while markets are closed, others want to capture the instantaneous surges in trading that would accompany a “live” release of significant information.

In India, a large cotton producer, monsoon rainfall was 36 percent below average in the week to June 6.

Open interest, an indicator of investor interest, rose by 1,590 lots to 203,234 on June 6. Friday was the highest reading since Feb. 10, 2011 when open interest was at 220,096 lots, ICE data showed.

Thursday’s traded volume was 64,040 lots, about 163 percent greater than the 30-day average, according to Thomson Reuters data.

(Reporting by Carole Vaporean; Editing by Bob Burgdorfer)

Source: http://www.reuters.com/article/2012/06/07/markets-cotton-idUSL1E8H7FQ520120607

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