US cotton futures settled sharply lower on Monday on switch trade and liquidation as players moved out of the spot contract but the worst drought in a century in the key growing state of Texas kept losses in new-crop contracts to a minimum, analysts said.
The benchmark December cotton futures on ICE Futures US fell 1.77 cents to end at $1.3693 per lb, moving from $1.3472 to $1.3964. On Thursday, the contract finished at $1.3923 per lb, the highest settlement for the third position cotton contract since May 3. Spot July cotton dropped the 6.00 cents daily limit to end at $1.5563 per lb.
"This is all spread-related trading," said Sharon Johnson, senior cotton analyst at commodities brokerage Penson Futures in Atlanta. "The vast majority of the weakness in July is because of the rolling." The new-crop December cotton contract, on the other hand, is very well supported by the severe drought in Texas, the biggest cotton growing state in the United States.
The National Drought Monitor said in a report last Thursday that more than half of Texas is experiencing "exceptional" drought. Open interest in the cotton market was at 161,193 lots as of June 3, its loftiest level since April 20, the exchange data showed, and a seeming indication of renewed investor interest in the cotton market.
Total volume traded Monday reached almost 25,000 lots, over 50 percent above the 30-day norm, Thomson Reuters preliminary data showed. Certificated cotton stocks continued to shrink as it stood at 43,057 (480-lb) bales. Traders said that meant deliverable cotton supplies against the spot July contract would be very tight when the contract goes into delivery later this month.