ICE cotton futures were little changed in light trading on Monday, consolidating after investor buying lifted the fibre to its largest two-day rally in more than a month, dealers said. The most-active December cotton contract on ICE Futures US edged up 0.01 cent, or 0.01 percent, to settle at 86.19 cents a lb. Cotton was little changed throughout the day, with about 8,000 contracts traded compared with the 30-day average of about 24,000 contracts, preliminary Thomson Reuters data showed.
Prices were consolidating after a speculator-driven rally late last week, underpinned by expectations of demand from China and falling exchange stocks, dealers said. "China is going to stop auctioning off from their reserves at the end of this month. That suggests that they will come back to buying in good quantities," said John Flanagan of Flanagan Trading Corp in North Carolina.
Dealers see sales from the China's state reserves as a sign that demand for foreign cotton may slow in the world's top market. China's appetite for global cotton has grown because of a government stockpiling program started in 2011. Now, the country is forecast to hold more than 60 percent of record global inventories by the end of July 2014.
Exchange stocks fell to the lowest level since April, totalling 448,000 bales after another steep drop-off of about 21,000 bales, according to the most recent ICE data. Merchants have said they expect ICE stocks to decline steeply following a large July delivery, potentially straining US supplies in the new crop year that begins on August 1 after unfavourable weather caused plantings delays.
Mill buying has quieted as a quick price recovery from a drop below 84 cents a lb last week deterred demand, traders said. Open interest totalled 163,696 contracts on Friday, up 4,242 contracts in the last two days of last week, the most recent ICE data showed. The rise as prices rallied was seen as evidence of new long positions in the market.
Still, that was down significantly from above 200,000 contracts earlier this year. "There's not a lot of speculative interest. They've been pulled to other markets, to financial markets, to energy," said Spencer Patton, founder and chief investment officer of Steel Vine Investment in Chicago. In mid-March, front-month prices climbed to a one-year high of nearly 94 cents and non-commercial dealers boosted their bullish bet in cotton futures and options to a five-year high.