Cotton futures jumped on Friday, reversing earlier losses in heavy, volatile trade due to options-related dealings, the rolling of closely-watched commodities index funds, and jockeying ahead of a monthly USDA report due next week. The most-active March cotton contract on ICE Futures US turned higher in a late-session buying spree to close up 0.33 cent, or 0.5 percent, at 62.61 cents a lb, and the spot December shot nearly 2 percent higher before finishing up 0.77 cent, or 1.2 percent, at 63.96 cents.
-- USDA widely expected to hike supply outlook in crop report
Prices were under pressure throughout most of the session as traders rolled forward long positions from the December contract. Options-related dealings added to the volatility, ahead of the expiration of December contract options. The increased volumes amid the index fund roll may have given dealers with short positions an opportunity to cover, causing the rally, said Peter Egli, director of risk management at British merchant Plexus Cotton Ltd.
"They looked for some liquidity to get out to buy their shorts back," Egli said. Speculators still hold a substantial gross short position in cotton contracts, though they have been unwinding it in recent weeks. Producers have been holding back, adding support, Egli said. The US Department of Agriculture (USDA) on Monday will publish its monthly supply-demand forecast, widely expected to show an increase in world inventories by the end of July 2015 due to higher output, largely in India, where farmers boosted acres this season.
US stocks by the end of 2014/15 are expected to be revised higher due to falling export demand, traders said. US output is expected to be unchanged to slightly higher. "There's some excellent buying support near 62 (cents)," said Jack Scoville, a vice president with Price Futures Group in Chicago. "A lot of it is positioning before the report on Monday." Prices hit five-year lows in September due to mounting worries over excess supplies as Beijing switches to a direct-payment program for farmers instead of stockpiling program that has driven voracious import demand.