New York cotton settles higher

US cotton futures rebounded to a firm close Monday on investor short-covering as fibre contracts recouped the losses posted late last week, analysts said. The key May cotton contract on ICE Futures US gained 1.61 cents to settle at $2.0458 per lb, trading from $1.9935 to $2.0773.
The new-crop December cotton contract went up 1.10 cents to close at $1.3918. Total volume traded in the cotton market was around 26,100 lots, about 5 percent above the 30-day norm, Thomson Reuters preliminary data showed. Analysts said the market received support from a government report last week showing that US cotton ending stocks were at their lowest level since the 1930s.
"It's got such strong fundamentals underneath it," Mike Stevens, an independent analyst from Louisiana, said of the new-crop December cotton contract. Near-term, the market is facing overhead resistance because prices have sprinted to such a high level that some mills are balking at picking up cotton supplies at this level, Penson Futures senior cotton analyst Sharon Johnson said.
Open interest in the cotton market stood at 198,203 lots as of April 8, just shy of the 2-month peak at 200,051 lots, which is the highest since February 10, data from ICE Futures US showed. Some traders believe part of the rise in cotton open interest was caused by an increase in short positions in the market, but others believe there is an equal split in the build-up of both short and long positions in cotton.
"There are investors who believe that cotton supplies will remain tight into 2012 so you should expect investors to go into the long side of cotton. But a price above $2 means demand destruction so short-term players could play this market short as well. That's why it is so hard to read anything definite in this increase in open interest," one dealer explained. The market has already digested the USDA's estimate of US cotton sowings and players are keeping an eye on the near drought conditions in the top growing area of Texas, which is expected to plant about half of the US cotton crop.