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NY cotton futures pulls back this week
Feb '14
The liquidation of the March contract proceeded in a speedy and orderly fashion, as open interest was down to just 6’393 contracts or 639’300 bales as of this morning.
With another 3’300 contracts trading, most of which are believed to liquidate existing positions, any last minute fireworks become unlikely as March enters its notice period on Monday. 
Remaining open interest won’t be much more than the current certified stock of around 252’000 bales, although it remains to be seen whether the current owners are willing to give it up that easily.
When a futures contract approaches its notice period we often see it converge with the cash market, and this time appears to be no different. With March at around 86 cents, it is definitely in the vicinity of US spot prices, which should spark some interest in the certified stock based on its cash value alone, regardless of whether there is enough carry on the board or not.
Based on the most recent open interest, CFTC and on-call figures, it seems safe to say that the trade has simply postponed the day of reckoning by rolling positions and fixations from March to May. 
This week’s pullback is giving traders hope that a momentum shift might flush out some spec longs and thereby lead to a deeper correction, but it doesn’t change the fact that the trade still needs to buy back and/or fix a large amount of contracts before July goes off the board. 
Total open interest in the futures market stood at 168’307 contracts as of this morning, of which 104’083 were in May. This is considerably less than a year ago, when total open interest amounted to 196’820 contracts, of which 137’530 belonged to May. 
This difference is easily explained by the smaller US crop and the tighter availability of cotton around the globe, since there are fewer bales that need to be hedged. Likewise we have a smaller trade net short position at 10.4 million bales, which is still sizeable, but nevertheless quite a bit less than the 16.1 million bales of a year ago.
Considering these reduced overall positions it is therefore all the more surprising that unfixed on-call sales are so much larger this season. The latest on-call report as of last Friday showed hardly any improvement, as unfixed on-call sales in March, May and July still amounted to 5.49 million bales. 
While March saw its balance drop by 2’868 contracts, May and July increased by nearly as much, adding a combined 2’663 contracts. 

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