Message: Cotton Short ‘Squeeze’ Looms as Stockpiles Slump
Cotton Set for `Fireworks Display' as Contract Expires: Technical Analysis
By Leslie Patton - Nov 22, 2010
Cotton futures for December delivery may jump 16 percent this week as the pending expiration of the New York contract forces speculators to bid for tight supplies, said O.A. Cleveland, an analyst at cottonexperts.com.
The attached chart shows open interest in contracts that have yet to be closed, liquidated or delivered on ICE Futures U.S. surged to a two-year high on Nov. 9 as inventories available for delivery from the exchange’s five warehouses plummeted 95 percent since June. Prices are up 69 percent in the past year and touched a record $1.5195 a pound on Nov. 10.
“The market could play host to a fireworks display beginning next week as it rations the few available certificated stocks,” Cleveland, who is based in Starkville, Mississippi, said Nov. 19 in an e-mailed note.
Traders are scheduled to indicate tomorrow how much they want for physical delivery, the so-called first-notice date, from December futures that expire on Dec. 8, exchange data show. The last time that happened, on Sept. 24 with the expiring October contract, cotton prices rose 11 percent over the next three sessions.
While futures plunged 8.2 percent last week on concern that China, the world’s biggest user, will slow its economy and curb commodity demand, prices will get a boost this week because ICE inventories are below what will be needed for delivery, Cleveland said.
“Definitely, there is a supply mismatch,” said Ron Lawson, a managing director at Logic Advisors, a commodity consultant in Sonoma, California. “The cash market is tight, very tight, so prices could go up.”
Price Forecasts
The December contract, the closest to expiration, may jump as much as 20 cents by Nov. 29 from $1.279 on Nov. 19, Cleveland said. The most-active March contract may rise by 4 cents from last week’s close at $1.2315, he said.
“Whoever is long is squeezing whoever is short, making them pay up,” Sharon Johnson, a senior analyst at Penson Futures in Atlanta, said in a telephone interview on Nov. 16.
Open interest for cotton futures was 10,167 contracts as of Nov. 19, exchange data show. Merchants may call for delivery of as many as 4,000 contracts against the December contract, representing 416,000 bales, Johnson said.
An average of 2,316 open positions, or about 241,000 bales, have been delivered on expiration of the past 12 futures contracts, according to the exchange. The highest delivery total was 740,376 bales, or 7,119 contracts, for the December 2008 contract, according to data available on the ICE website.
U.S. stockpiles plunged to a record low of 8,910 bales on Oct. 8, down 99 percent from this year’s high of 1.08 million on June 2. Stockpiles were 919,726 bales on Dec. 1, 2008, the first delivery date for the December 2008 contract.
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