US cotton futures settled higher on Monday on investor buying as talk that there will not be enough cotton to be delivered in the spot month stoked a strong advance, analysts said. The key July cotton contract on ICE Futures US increased the 6.00 cent daily limit to end at $1.5115 per lb, with the session low at $1.4518. The new-crop December cotton futures rose 4.42 cents or by 3.8 percent to finish at $1.2003 per lb after moving between $1.1479 and $1.214.
Volume traded stood around 12,800 lots, over 50 percent below the 30-day norm, Thomson Reuters preliminary data showed. Traders said leading merchant Allenberg was supposed to have decertified the cotton it took delivery on in the May contract, causing certified cotton stocks to fall and increasing fear there will not be any cotton to be delivered when the July contract goes into delivery.
"The July (contract) is bringing the board up," said Mike Stevens, an independent cotton analyst in Louisiana. He said the prospect of a short squeeze in July is a distinct possibility. Traders said another factor for the market's strength is bad weather posing a threat to cotton crops in Texas, the biggest cotton growing state in the country.
Texas has been hit by a withering drought along with southern Georgia, the second biggest cotton growing state. Farmers along the swollen Mississippi also have to contend with severe floods, which have drowned thousands of acres. Open interest stood at 147,560 lots, the lowest level since October 2009, data from the ICE Futures US exchange showed. Volume amounted to 15,094 lots as of May 13 versus the previous tally of 19,584 lots, exchange data reported.
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