Cotton futures ended at a five-week peak on Monday, as a combination of strong technical momentum and supportive outside markets buoyed values, but stiff resistance near the 80-cent level could spark a near-term correction, analysts said. "Cotton has had a move from right at 73.00 on July 20 to a high today at around 9:00 am EDT this morning of 79.80 (cents) before selling off," said Bill Raffety, senior analyst for futures brokerage Penson GHCO.
"There is some decent resistance in and around today's high, so many in the trade will be looking for more of a correction before possibly coming back in and buying," he said. The December cotton contract rose 0.58 cent to settle at 79.34 cents per lb, after moving between 78.16 to 79.80 cents.
It was the highest close for the second position contract since June 29, according to Thomson Reuters data. The spot October cotton contract gained 1.49 cents or by 1.8 percent to end at 83.85 cents. The premium October cotton holds over the key December contract now stands at 4.51 cents, up from the previous session's premium of 3.60 cents.
Volume traded in the December contract stood at 15,402 lots at 2:51 pm EDT (1851 GMT). Cotton derived support from the firmer tone in outside markets, after the US National Hurricane Center said Monday that Tropical Depression 4 formed in the Atlantic Ocean.
The announcement helped to fuel gains in wheat, beans, corn and crude oil. Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana, said the big question facing the market now is whether or not there will be sufficient extra cotton to replenish the certificated stocks before the end of the year. The October contract continued to enjoy a premium over December because of tight deliverable stocks.
US certificated cotton stocks stood at 47,365 (480-lb) bales as of July 30, down more than 95 percent from the beginning of June when they stood at 1.08 million bales. Cotton stocks are at their lowest level since 2004, according to exchange data.
"Any additional reduction in the certificated stock will take them to the lowest level since November 1997," Stevens said. Technicians see resistance in the December contract at 79.80/79.90 cents, with firm support at 77.30 and 76.50 cents. Volume traded Friday hit 23,022 lots, nearly double that of Thursday's 12,131 lots, ICE Futures US data showed. Open interest in the No 2 cotton market was at 172,451 lots as of July 30, compared to the prior 167,092 lots, the exchange said.
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