Mills price fixation to add further support to market

18 Jan '08

3 min read

NY futures exploded to the upside this week, as March gained 496 points to close at 71.92 cents, while December rallied 543 points to close at 79.99 cents.

It was a memorable week for the cotton market, as the investment-driven juggernaut continued on its northerly path. Trading volume was phenomenal, even surpassing the high levels we typically see only during the rolling period.

On Monday, no less than 51'396 futures and 79'211 options traded, and this despite the electronic platform being shut down for most of the session. Between Friday and Wednesday the daily volume amounted to at least 85'000 futures and options, before dropping down to 'just' 45'000 contracts in today's session.

Surprisingly, this five cents rally was not the result of short-covering. Since last Thursday, open interest increased by another 19'021 contracts to 273'764 contracts as of this morning, which suggests that both sides, spec longs and trade shorts, continued to add to their respective positions. Open interest has grown by nearly 42'000 contracts or 4.2 mio bales in the first two weeks of 2008.

The most recent spec/hedge reports by ICE (futures only) and the CFTC (futures and options) both show that index and hedge funds continued to allocate more money to the long side, while the trade increased its already sizeable short position. According to the latest ICE report as of January 11, spec longs owned a record 14.05 mio bales, while spec shorts held 6.94 mio bales.

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