US cotton futures posted their first positive close in four sessions on Friday, rallying more than 2 percent as recent pressure from a short squeeze in front-month July eased as the contract went into delivery. The July contract rallied more than 14 percent in the last week.
On Wednesday, it hit its highest level since June 6 as players holding on to short positions scrambled to cover in front of the start of the contract's delivery period Friday. "July was up earlier today because we had a strong taker in the July contract," said Sharon Johnson, senior cotton analyst with commodities brokerage Penson Futures, referring to delivery notice data that showed 455 of the 459 notices were stopped out by one company. "When you get 99.9 percent of the delivery, you have 99.9 percent of the open interest. With open interest this morning at 2801 lots, 99.9 percent of that is in the hands of Allenburg.
"An incredibly strong stopper, not only for what was issued last night, but for the remaining open contracts in July," she said. The spot July cotton contract on ICE Futures US edged up 0.67 cent to finish at $1.6522 per lb. The key December contract rallied 2.52 cents or 2.1 percent to end at $1.2192 per lb, dealing from $1.1960 to $1.2274. Traders said the December contract bounced higher following a two-week downturn inspired by the short-squeeze in front-month July. "There had been an inordinate number of buy July, sell Dec's that have been going on for a while now. That pressure is now off and it's allowing December push higher," one dealer said. "We are bouncing off of the weekly lows, but going nowhere. December really doesn't get going until we can close up over $1.25."
On the supply side, Indian cotton exporters are offering discounts to New York futures prices for the first time this year to secure sales for an extra 1 million bales allowed by the government as competition heats up, three exporters told Reuters. Next week, the market will turn its attention to the annual planted acreage report by the USDA showing how much was planted to major row crops in the United States. Open interest in the ICE futures cotton market fell to 131,748 lots as of June 23, the lowest level since mid-September 2009, ICE Futures US data showed.