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(BN) Cotton Squeeze Sends Prices to Highest Since ’14 as Options
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Cotton Squeeze Sends Prices to Highest Since ’14 as Options Jump
2017-05-15 17:59:49.683 GMT
By Shruti Date Singh, Megan Durisin and Jeff Wilson
(Bloomberg) -- Cotton prices extended a rally to the
highest since June 2014 amid buoyant demand for U.S. exports and
signs of a squeeze on July futures. Bullish options jumped for
the second straight session as volume surged.
On ICE Futures U.S. in New York, cotton futures for July
delivery climbed 2.76 cents, or 3.4 percent, to 84.82 cents a
pound at 1:54 p.m. Earlier, the price surged by the expanded
exchange limit of 5 cents to 87.18 cents, the highest for the
most-active contract since June 4, 2014. Combined volume of the
three most-active ICE call options approached 10,700. The U.S.
is the world’s top exporter.
Through May 4, U.S. export shipments in the season that
ends July 31 have climbed 76 percent to the highest in six
years, according to government data. Unfixed cotton call
positions, measuring the quantity of calls bought or sold on
which the price has not been fixed, have more than doubled from
a year earlier, Commodity Futures Trading Commission data show.
“It really comes down to tight available supply, and the
mills trying to get the coverage that they need,” Arlan
Suderman, the chief commodities economist at INTL FCStone in
Kansas City, Missouri, said in a telephone interview. “Exports
have been really strong, much stronger than what was
anticipated.”
Merchandisers sold a lot of cotton forward and never
“fixed” the price, and they now face a rising market with short
positions, Jim Nunn, president of Nunn Cotton Co. in Brownville,
Tennessee, said in a telephone interview. July is the last
contract of the marketing year.
The tight domestic supply may not last. U.S. production is
expected to climb 12 percent in the season that begins Aug. 1,
with stockpiles at the end of the season surging 56 percent to 5
million bales, the U.S. Department of Agriculture forecast last
week. Futures for December delivery are trading 12 percent below
July at 75 cents.
World inventory is forecast to shrink for the third
straight year amid falling stockpiles in China, the largest
consumer. “The government is expected to continue policies that
have led to a significant reduction in their stocks in recent
years,” the USDA said in a report last week. China has been
auctioning off reserves in recent months.
Aggregate futures trading more than tripled compared with
the 100-day average for this time, according to data compiled by
Bloomberg. A measure of 60-day volatility rose to the highest
since November.
On May 12, the July 85 cent call soared fivefold to 2.09
cents on record contract volume of 11,726, the most-active in
the session. Futures jumped by the usual limit of 3 cents.
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