India Cotton Prices Gain, US Cotton Futures Rose

India cotton prices gained by Rs 200 a candy of 356 kg on Monday. U.S. cotton futures rose slightly on Monday, consolidating just below 77 cents per lb, as speculative and trade investors continued to build their bullish bets on nearby prices due to a shortage of certified exchange stocks.

According to market sources, mills and export demand is increasing and against it supply is bit lower in Gujarat. A Saurashtra-based ginner said: “Supply is not enough to match the demand as farmers want a higher price for their produce. Moreover, supply worries due to poor quality of new cotton crop also boosted the sentiment.”
In contrast to the support under the nearby contract, the March contract slipped 0.06 percent to 75.38 cents, leaving the backwardation at 1.55 cents. That was down from over 2 cents last week, the market's first inversion since June. In Gujarat, A grade S-6 cotton was traded at Rs 34,000-34,300 a candy and B grade at Rs 33,800-34,000.

Prices of V-797 were ruling at Rs 27,500-28,300, new cotton was offered at Rs 34,000-34,500.
In Maharashtra, A grade cotton low micronaire fetched Rs 33,500-33,800 and A grade high micronaire cotton 29+ MM quoted at Rs 33,800-34,300. New crop was offered at Rs 34,000-34,500. About 17,000 bales of 170 kg each arrived in Gujarat and 47,000 bales arrived in India.
Kapas price was up by Rs 20-25 to Rs 850-915 for 20 kg.

On the ICE US, cotton for December delivery was at 77.42 cents/lb. Concerns about a nearby squeeze kept the front-month contract firmly above the forward market, resulting in what is
known as a backwardation of over 1 cent. The most-actively traded December cotton contract on ICE Futures U.S. settled at 76.93 cents per lb, up just 0.07 percent. The market stabilized after hitting its highest level since May, just below 80 cents, last Thursday.

With nearby prices well above the forward curve, merchants are likely to try to cash in by certifying material with the aim of potentially delivering against the board.
"It gives merchants the incentive to bring material to the board," said Andy Ryan, risk management consultant at INTL FCStone.

With the backwardation expected to draw fiber into the market, traders are watching for any rise in newly certified stocks or material awaiting review for certification.
Some 1,452 lots were pending review as of Friday, with stocks as low as 8,433 480-lb bales.
Investors continue to build a long position, with open interest - the number of outstanding contracts - rising above 207,000 on Friday.

That is its highest level since Feb. 10, 2011, just a month before prices topped out at a record $2.27 per lb, exceeding even their U.S. Civil War peak from 1861. Prices then more than
halved by July, causing the longest and more tumultuous periods in the market's history.
The race to the top prompted farmers to walk away from contracts signed below $1 per lb just six months before. In turn, the plunging market meant textile mills defaulted on their purchases signed at the peak of the market. While price volatility has ebbed this year, reneging has
become endemic, with counterparties quicker than ever to walk away from deals if prices shift.