The week ending June 10 saw ICE cotton futures step-up a cent and a half to the upper end of their longstanding trading range. This happened in the context of fund rolling, i.e., in large volume trading. However, it also involved a large increase in open interest suggesting that perhaps the hedge funds were getting more bullish (which they were). Thursday and Friday saw somewhat lower closings with the Dec’16 settling 65.07 cents per pound at week’s end.
The cotton news this week began with news of more unwelcome rains as well as reports of tightening supplies in India — both of which might motivate bullish speculators. Thursday saw slightly lower but still middle-of-the-road export sales, which is still following the expected demand pattern. Finally, neutral U.S. and bullish world WASDE numbers apparently had no influence on weaker ICE cotton settlements at week’s end.
Regarding new crop marketing, a 65:58 cent put spread on Dec’16 futures cost has been varying a lot with the fluctuations in the underlying futures contracts. The spread would protect against Dec’16 declining to 58 cents. However, it currently does not make sense to pay too much to protect against a similar sized downside risk, especially when the downside risk is already protected by the loan program. If Dec’16 ever rallies into the upper-60s, this spread might become more affordable and more rational.
For further analysis and discussion of near term price behavior, click on the menu above entitled “Near Term Influences”. Longer term price behavior is more influenced by fundamental supply and demand forces, which is discussed above under the “Market Fundamentals and Outlook” menu tab.
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