* Prices fell after stocks hit June 2011 highs
* Late recovery triggered by mill buying - traders
* Traders braced for 'triple witching' on Friday
By Chris Prentice
NEW YORK, Feb 6 U.S. cotton futures rose in late
trading on Wednesday, reversing earlier losses as mills jumped
in to buy fiber after prices hit a perceived floor.
The most-active March cotton contract on ICE Futures U.S.
settled up 0.21 cent, or 0.3 percent, at 81.72 cents per
Buying was triggered after prices fell to an intraday low of
80.99 cents per lb, down 0.6 percent. A five-week rally in
prices had eased off after big increases in certified stocks. On
Tuesday, they hit twenty-month highs.
The widening contango, with the forward May contract
accelerating away from the spot price, prompted textile mills to
buy to avoid forking out more down the road. May's premium to
March spiked to 0.95 cent on Tuesday and remained firm at 0.83
cent on Wednesday.
That shift was all the more dramatic given that May had been
at a 0.69-cent discount to spot, its largest inversion since
November, just two weeks ago.
Cotton futures also found support from a forecast on Tuesday
by the U.S. Congressional Budget Office that cotton plantings
would shrink to the lowest level in four years.
More widely-watched will be the results of the National
Cotton Council's plantings survey due on Saturday morning during
the association's annual meeting in Memphis, the epicenter of
U.S. cotton trading.
Farmers in the world's third-largest producer are expected
to sow one of their smallest crops in two decades this year as
fibers lose a battle to acreage to the more buoyant grains
market, a Thomson Reuters poll showed last month.
Earlier in the day, prices had been under pressure from
another steep rise in certified stock levels. Exchange stocks
reached 154,738 480-lb bales on Wednesday, up 5.4 percent to
their highest level since June 1, 2011, according to ICE data.
With certified stocks climbing, "the market is backing off,"
said Peter Egli, director of risk management for Plexus Cotton
Ltd, a British-based medium-sized merchant.
Stocks have increased every session since Dec. 20 as higher
spot prices have lured material to the board and as northern
hemisphere farmers wrapped up their 2012/13 harvest.
Another 61,970 bales were awaiting review by the U.S.
Department of Agriculture, up almost 10,000 bales from Tuesday.
Fiber's longest rally in two years has shown signs of
weakening this week. It was the best performing commodity in
January, increasing by a whopping 10.5-percent, mainly due to
speculative buying. That helped to offset two years of
double-digit percentage falls.
BRACING FOR VOLATILITY
The cotton market was braced for a volatile end to the week
with the USDA's monthly crop report due at midday on Friday,
coinciding with the expiry of March options and the start of
fund index rolls. One trader described it as the market's
While analysts said they expect few changes to the USDA's
forecasts, the report is seen as a critical milestone for the
massive amount of speculative money that has flowed into the
market since the start of the year.
The U.S. government has pegged ending stocks for 2012/13 at
a record above 82 million bales, although China, the world's
largest textile market, holds half of that total in its
"Global fundamentals do not appear to be the driving force
behind price movement," Sharon Johnson, cotton specialist at
Knight Capital, said in a pre-USDA 2012/13 world cotton
(Reporting By Chris Prentice; Editing by Tim Dobbyn)