ICE cotton rebounded off a near 5-1/2-year low hit the previous session to rise the most in 8-1/2 weeks on Monday as speculators covered short positions in response to the Commitment of Traders report released Friday after market close. The most-active front-month March cotton contract on ICE Futures US gained 1.32 cents, or 2.3 percent, to settle at 58.62 cents a lb for its largest single-session gain since November 26, 2014.
Data released Friday by the US Commodity Futures Trading Commission revealed that speculators had increased their net short position to 20,165 contracts, the largest bearish bet in nearly four months, as prices fell toward their lowest levels since September 2009. Upon seeing the extent of their selling activity, speculators halted sales on Monday and many began to cover their shorts, driving the price higher, said Sharon Johnson, senior cotton specialist with Wedbush Securities in Atlanta.
"It's in response to the amount of selling they did through last Tuesday," Johnson said. "They took a look at how much they may have sold collectively when they saw the Commitment of Traders report." The impact of speculator selling had been countered by strong interest in buying from mills looking to take advantage of the low prices, preventing further price drops and convincing investors that now was a good time to cover some of their shorts, Johnson said.
Volume picked up around 2 pm EST (1900 GMT), when the price exceeded a key psychological level at 58.50 cents a lb, triggering automatic buy orders and exaggerating gains, said Keith Brown, proprietor and cotton trader at Keith Brown and Co in Moultrie, Georgia. "It was a prime moment for a short-covering rally," he said. Cotton's losses in recent weeks have been prompted largely by macroeconomic concerns, with slowing growth in top-consumer China pressuring cotton and sliding crude oil prices weighing on the commodities complex.