US cotton futures settled higher Tuesday on investor buying as talk there will not be enough cotton to be delivered in the spot month fuelled the contract's surge, analysts said. Benchmark July cotton contract on ICE Futures US increased 3.89 cents to conclude at $1.5504 per lb, dealing from $1.5083 to $1.5786.
New-crop December rose 1.10 cents to finish at $1.2113 after moving between $1.17 and $1.222 Volume stood at around 16,600 lots, a quarter below the 30-day norm, Thomson Reuters preliminary data showed. Traders said top merchant Allenberg was supposed to have decertified the cotton it took delivery on in the May contract, causing certified cotton stocks to fall the past few sessions.
The failure of the July contract to race past the topside target of $1.60 could see the market falter. "If we can't go by the $1.58-$1.60 area, we'll go right down," said Jobe Moss, an analyst for brokers and merchants MCM Inc in Lubbock, Texas. The back of the board in turn was supported by the withering drought menacing cotton crops in Texas, the biggest producing state in the country.
Aside from Texas, another drought-stricken area is southern Georgia, the second biggest cotton growing state here. Farmers along the swollen Mississippi also have to contend with severe floods, which have drowned thousands of acres of cotton. "December (contract) is waiting for rains in Texas," said Moss, adding showers would quickly knock December back to the $1.10 area or even lower. Open interest stood at 147,516 lots, the lowest level since October 2009, data from the ICE Futures US exchange showed. Volume amounted to 13,590 lots as of May 16, versus the previous tally of 15,094 lots, according to the exchange.