US cotton futures rose for a third straight session on Friday before paring gains after hitting a three-week high on speculative buying triggered by the previous day’s buoyant export sales data. Futures volumes were low though as investors sat on the sidelines ahead of the US Department of Agriculture’s monthly crop update on Tuesday. Some analysts expect demand estimates to be increased for US fibres due to higher-than-expected export sales for the first four months of the 2012/13 season.
— Investors sit on hands ahead of USDA due Tuesday
— Options volumes exceed futures in rare move
— Prices rise even as dollar strengthens on payrolls data
The most-active March contract on ICE Futures US settled up 0.24 cent, or 0.32 percent, at 73.79 cents per lb, just shy of its intraday high of 73.92 cents, its highest level since November 16. Even after recent gains, fibres ended the week down 0.5 percent, its smallest weekly move since early October. Investors were still encouraged after Thursday’s data that showed net upland sales in the week to November 29 jumped 38 percent to 415,700 running bales from the prior week, the highest since mid-June and the biggest for the current marketing year that started on August 1.
While futures volumes were below recent averages with just under 7,900 contracts in the front month traded, options activity spiked as traders protected short positions against potential price jumps. Traders have been lured back to options because the lack of price volatility has cut the costs. Prices have been stuck in a 5-cent range for the past month.
About 9,500 options changed hands on Friday, the highest daily volume in a week. In a rare occurrence, options activity exceeded futures volume in the main March contract. Some traders also bought outright call options, which is a bullish signal as it gives investors the right to buy contracts at a certain price and time. “Futures wasn’t as impressive as options. Some traders were buying up calls and covering up volatility that’s been so depressed,” said Lou Barbera, cotton dealer at ICAP Cotton in New York.
“On futures it was much a do about nothing. Prices are still trapped in the same range.” Technically the market also strengthened, with the 20-day moving average set to cross above the 40-day for the first time since the end of September. That will confirm the medium-term uptrend of recent weeks, INTL FCStone analysts said.
“Such a cross will be taken as a bullish sign by many traders, but we caution moving averages have less meaning in a trendless market,” they said. Cotton’s gains came even as the dollar rose after better-than-expected US jobs data. A weaker dollar usually boosts commodities priced in the currency, including oil and soybeans, as holders of the euro find those assets more affordable. Less-encouraging details within the report meant the US currency pared its gains ahead of a Federal Reserve policy meeting next week.