New York cotton jumps to seven cent limit as mills rush to fix prices

US cotton futures surged to their 7 cent upside limit, setting an all-time high, early on Wednesday and stayed there until the close as mills rushed to fix prices on cotton bought on-call before the upcoming delivery date for March futures.
Because Monday is US President's Day, delivery notices for the March cotton contract will be issued on Friday afternoon for Tuesday delivery, forcing many mills who purchased cotton on call to fix prices by then, brokers said. Benchmark March cotton on ICE Futures US finished at $1.9702 cents a lb., up 7 cents, or 3.68 percent. May, July and October contracts all also ended at their 7 cent limits.
Synthetic values, derived from moves on the options market, showed May futures got as high at $2.0193 per lb, easing to about $2.00 by the close, suggesting prices will keep rising. Tuesday is first notice day, but with Monday's holiday, notices of deliveries will be issued Friday.
"That's what's driving this thing. They're running out of clock. The mills have been in denial since 90 cents, buying when they don't believe the price," said Jobe Moss of MCM Inc in Lubbock, Texas. Now, however, the mills are being forced to reckon with the historic highs, because few merchants, who must pay carrying costs on the cotton, have been willing to let the mills continue rolling to a futures month, he said.
Many mills waited to fix prices, betting they would fall from record levels. Instead, they have continue to climb as US supplies dwindle. "There are a lot of bales on call. And if you look at May and July there is a tremendous amount bought basis those months too," said Moss, adding that accelerated prices gains will likely occur again when May and July contracts expire.
"A lot of this March has been rolled to May, as mills look for more time," Moss added. With synthetic values in the options market rising to levels above $2.0 a lb, brokers said futures prices will likely reach those levels by the overnight session.
An ICE Futures spokesman said, cotton options nearly reached their 14 cent limit. Once cotton prices surpassed $1.70 a lb, the ICE exchange revised its maximum limit for futures price moves to 7 cents up or down. The move in options is limited to double the futures price limit. "So many people were hung in the March contract that they were forced to run over and do something in options. This is the epitome of a panic blow off," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana.
Late in the day, ICE Futures raised cotton margins by 16.67 percent for speculators to $8,400 and for hedgers to $6,000. Until last Friday, prices had never surpassed the $1.89 level reached during the US Civil War during the 1860s.
Analysts said scarce supplies have been driving the current rally as demand heats up. Most US cotton has already been harvested and the pace of US cotton export sales continues to run hot. A survey by Reuters showed brokers estimate another round of healthy export sales at 275,000 running bales will be reported by the USDA on Thursday morning.