US cotton futures ended mixed on Thursday, with the front-month May contract recoiling from an intraday limit-up peak, as index fund rollovers heated up and traders readied for a government crop report on Friday. The key May cotton contract on ICE Futures US peaked at its 7-cent limit at $2.1506 per lb, before selling off in the last hour of business to end with a 0.16-cent gain, at $2.0822.
Market players attributed the late-session volatility in the May contract to increased index fund rollover business, as funds rolled out of May into July, with first notice day for May cotton just two weeks away. "For the next five days, the Goldman Sachs index funds will roll 20 percent of their position forward," said Mike Stevens, an independent analyst in Louisiana.
"They have been big-time long in the May contract, so what they did was come in and sell thousands of May's right at the close. That's what brought the July contract up off the lows." After the close, ICE Futures US raised cotton maintenance margins for speculators by 25 percent to $2,500 per contract from $2,000.
The new-crop December cotton contract tumbled 4.03 cents to end at $1.3794. Trading volumes were brisk, with more than 43,600 lots traded by 3:30 pm EDT 1930 GMT, more than 80 percent above the 30-day norm, Thomson Reuters preliminary data showed. Open interest in cotton futures continued to creep higher, rising 3,469 lots to an eight-week high at 199,158 lots as of April 6, according to ICE Futures US figures.
Prices also stumbled after reports of an earthquake measuring 7.4 shook north-east and eastern Japan. A tsunami warning was issued for the north-eastern coast but later lifted. Cotton market participants were also seen positioning in front of Friday's release of the US Agriculture Department's monthly supply/demand report. Traders said the market will pay attention to any adjustments in consumption and stock levels.
The first estimates for the 2011/12 cotton season will be released by the USDA in its May production report. The market has already digested the USDA's estimate of US cotton sowings and players are keeping an eye on the very dry conditions in the top growing area of Texas, which is expected to plant about half of the US cotton crop.
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