Most US cotton contracts finished with healthy gains on Monday, swept up by the rally in Chicago grain markets, with more support from Tropical Storm Debby's heavy rains over Florida, brokers said. July fell hard in minimal volume as the contract enters delivery period, but December futures, along with the rest of the board, posted robust gains, pulled up with corn and other agricultural futures on the Chicago Board of trade.
"Open interest in July is down to zilch. So, it doesn't matter what July does at this point," said Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta. December cottton on the ICE Futures US exchange was up 0.93 cent, or 1.35 percent, to settle at 70.05 cents per lb, after setting a range between 68.50 and 70.33 cents. Volume came to 9,726 lots.
The spot July cotton contract tumbled 3.71 cents, or 5.00 percent, to end at 70.46 cents per lb. Volume was paltry at 193 contracts. With Monday as first day of deliveries for July cotton, daily trading limits on prices were suspended. But, analysts said there was so little open interest left in July, with now less than 1,800 outstanding contracts, that the steep percentage loss in price was inconsequential to the market. "For anyone in the delivery process it's a question of, 'Do you want to make delivery or do you want to take delivery?,'" said Johnson.
"But December is up because of what's going on in Chicago with huge rallies in corn, beans, and wheat," she added. Last Thursday, December futures closed at 67.71 cents, its lowest settlement since June 5 and slipped to a two-week low on Friday at 67.38 a lb. Monday's gains recouped much of the loss. The rest of the board finished with robust gains. Total volume traded on Monday came to 11,051 lots, about 70 percent below the 30-day norm, Thomson Reuters data showed.
US corn futures surged the daily limit, rallying more than 7 percent to their highest since early February, as hot, dry weather in the Midwest growing area hurt yield prospects. "Dry weather in the Midwest is burning up the corn crop and we're getting into the pollination stage. That's not good for corn. By extension, cotton participates in a kind of spillover affect," Johnson added.
The weather impact from Tropical Storm Debby was also providing some lift to cotton prices as it moves across Florida. Tropical Storm Debby weakened slightly as it moved slowly over the northern Gulf of Mexico, dumping heavy rains and threatening to bring flooding and tornadoes to parts of Florida.
Cotton may have also benefited from Chinese buying after last week's declines, noted Mike Stevens, cotton analyst in Mandeville, Louisiana. "We're right back in the area where the Chinese National Reserve has shown extreme interest, and it will be no surprise to see additional new crop purchases."
In China, this week's rains in major corn and cotton producing provinces will give much needed relief to drought-stricken fields, although some areas risk being hit by floods, the country's weather bureau said. Friday's volume came to 20,642 lots, down 12,988 from 32,988 lots in the previous session, ICE Futures US data showed Open interest in the cotton market, an indicator of investor exposure, fell for the seventh consecutive session to a 6-month low at 166,418 lots, down by 929 lots, as of June 22.
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