ICE Cotton gains in late-day trading; price dip prompts buying

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* Cotton reverses direction as automatic buying triggered

* Earlier losses seen on pressure from financial markets

* Volumes heavy on May/July spreading, options expiration

NEW YORK, April 12 (Reuters) – Cotton futures rose on Friday during a late-session rally to post the largest daily gain in over a week, as declines to technical support triggered automatic buying, outweighing pressure from financial markets.

The most-active July cotton contract on ICE Futures U.S. gained 0.88 cent, or 1 percent, to settle at 87.62 cents per pound, after earlier falling as low as 85.49 cents a lb. It was the second-month contract’s largest one-day gain since April 2.

The spot May contract rose 0.92 cent, or 1.1 percent, to finish at 85.58 cents a lb.

Despite the day’s gains, cotton edged down 0.9 percent from last Friday’s close to post a second straight weekly loss, its fifth weekly decline of the year.

The Thomson Reuters-Jefferies CRB Index, a benchmark for global commodities, and world financial markets fell on doubts over the strength of the world economy. Those worries tend to pressure cotton, as they spark concern over whether consumers will have money to spend on apparel.

Fiber pushed past the outside pressure on Friday as a decline to intraday lows was seen triggering automatic buy stop orders and short-covering.

“The sharp turn-around is indicative of short-covering. We saw buying step in as the market found a bottom near the 85.50 (cents a lb) area in July,” said Sterling Smith, a futures specialist with Citigroup in Chicago.

Cotton prices have fallen steeply from a 1-year high of 93.93 cents a lb touched last month. Speculators have held a large net long position in cotton futures and options and were seen profit-taking after a rally of about 18 percent during the first quarter of the year.

Noncommercial dealers slashed their bullish stance in cotton contracts by 12,673 contracts to a 62,659 contracts in the week ended April 9, U.S. government data showed on Friday. The cut came as cotton prices slumped about 5 percent during that week.

Trading volumes were heavy at about 47,000 lots, compared with a 30-day average of about 24,000 lots, preliminary Thomson Reuters data showed.

The heavy activity came as open interest continued to flow out of the spot May contract into future contracts, and because of May options expiration, dealers said.

Prices surged in the first 2-1/2 months of the year as speculators boosted their bets in cotton to the highest since 2008.

Prior to the rally, cotton registered two years of declines, as synthetic alternatives eroded demand, and global surpluses grew.

The world is expected to see record global inventories by the end of the crop year through July, though more than half of those are projected to become part of China‘s stocks and are considered unavailable to the global marketplace.

Beijing began buildings its strategic reserves in 2011, paying above global prices to support farmers. The country is expected to maintain its stockpiling program. (Reporting by Chris Prentice; Editing by Tim Dobbyn)

Source: Reuters

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