US cotton futures rallied to Friday's daily limit, chalking up steep gains for the last day in April, along with most other commodities, as many investors rotated into hard assets believing the US Federal Reserve would keep money cheap for awhile.
"I think a lot of people realised after the Fed's press conference (on Wednesday) that easy money is here for a while," said Sean McGillivray, head of asset allocation for Great Pacific Wealth Management in Oregon, noting nearly all commodities advanced on Friday.
Most-active July cotton on ICE Futures US closed with 6.0 cent gains, the upside daily limit, at $1.5802, a 3.95 percent increase. New-crop December cotton rallied 4.35 cents, or 3.44 percent, to $1.3093 cents a lb. by settlement. May cotton gained 5.96 cents, a 3.45 percent rise, to end at $1.7878 per lb. Analysts were puzzled by the sharp gains in May, which expires on May 6 and is in the middle of deliveries.
Only 167 delivery notices have been issued to date. Yet, open interest in the May contract still seemed high, with 5,229 lots at the start on Friday, for a contract that has been in delivery period all week. Open interest declined only minimally from 5,350 lots at the end on Wednesday.
For the benchmark July contract, the session began with follow-through panic selling, but brokers noted that the selling eventually ran out of steam. "It took very little volume to establish a 1,000 point range to get July back to the upside," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana.
He added mill fixations picked up considerably under $1.50 per lb. July cotton slipped to a session low at $1.4780. "There are 16 times more mills needing to buy to fix (prearranged) transactions in July than producers needing to sell," Stevens said.
Meanwhile, December futures benefited from the speculative investment that lifted many other commodities, as well as the dry weather forecast in biggest US producing state Texas. On Wednesday, the US Federal Reserve's policy-setting statement confirmed it left its loose monetary policy intact for an extended period.
If demand should pick up, supply coming from Texas has been put in jeopardy by drought conditions that could affect the crop due in December if they persist. Weather experts said Thursday, devastating drought intensified across Texas over the last week. Conversely, the worst floods since 1937 are expected to swell the Mississippi River in about two weeks.
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