The most-active March contract on ICE Futures US rose cents, or 1.67 percent, to settle at 72.62 cents per lb, with buying interest accelerating once prices breached 72 cents. Prices fell to the lowest in almost a month on Friday amid continued concerns about the growing global surplus and weakening demand.
But on Monday, the market garnered support from a rallying grains market, with soybeans hitting two-week highs on concerns about the impact on supplies caused by dry weather in parts of southern Brazil.
The roll over into the March contract continued without much ado, with only 1,154 lots of open interest – outstanding contracts – left in the December contract ahead of its expiry on Dec. 6.
That compares with just over 130,000 lots in the most-active March contract.
“There’s virtually nothing left. The weak longs were pushed out (last week),” said Sharon Johnson, cotton specialist at Knight Futures.
But with prices stuck in a 6-cent range over the past two months, there has been a big drop in liquidity. With the Northern Hemisphere harvest almost finished, it is typical for open interest to fall at this time of year.
Open interest was down to 163,661 lots on Friday, the lowest since January and down 21 percent from 208,000 lots at the end of October, which was the highest for over a year.
Deliveries against the December contract after the first notice day on Friday were also unspectacular. Term Commodities, owned by Louis Dreyfus, the world’s largest cotton merchant, offloaded just under 200 lots against the December contract, with Newedge USA LLC taking the majority. ICE data showed.
The commodities broker would likely receive the fibers on behalf of a merchant, who will ship them to mills abroad, traders said.
While prices are range bound now, several bullish factors could force fibers to break out towards the end of the year and early in 2013, including buying by index funds as they rebalance their annual commodity portfolios and an expected cut in plantings when farmers plan next year’s crop, traders said. China’s strategic reserve also continues to purchase fibers for its stockpile.
With prices off by a quarter since the start of the year, the funds will need to buy more cotton to recoup the dollar amount assigned to fibers. The buying typically takes place in early January.
Growers are expected to grow significantly less cotton next year in favor of grains, which have soared in value due to the drought in the US farm belt over the summer.
“There’s no less cotton than yesterday, (but) the market is susceptible (to a rally),” said Ron Lawson, a cotton trader and partner of commodities investment firm LOGIC Advisors.
Fibers defied a weak broader commodities market as investors continued to hope for deals to restart emergency aid to Greece and to head off a US fiscal crisis.
Concern about whether US lawmakers would reach a deal to avoid $600 billion of tax increases and spending cuts in 2013 limited risk appetite.
The latest data showed that speculative investors covered some of their net short positions before the Thanksgiving holiday.
The noncommercial dealers cut their net short position in cotton futures and options by 7,274 contracts to 5,171 in the week to Nov. 20 as the benchmark futures contract rose to a three-week high.
That is a small reversal from the previous week when hedge fund and other speculative investors switched to being net short and built their biggest net short position since March 2009.