Cotton futures are soaring

Because investors fear a short squeeze and have to pay higher prices for future cotton contracts such contracts are on the rise

Since last Tuesday U.S. cotton futures surged six percent as investors presume that cotton prices would fall and investors found themselves as victims of a short squeeze because of recent cotton purchases by China. Futures have climbed in the last nine sessions due to new demand for the fibre from China. According to U.S. Department of Agriculture China has been buying up nearly 95 % of the net total of 795700500 pound bales of cotton that were sold for export. The previous week China had already purchased 81 % of the available 129000 bales for export. The merchants who made the sales to China need to buy cotton for July delivery to fulfil their commitments since it is the end of the season and U.S. stocks are low. In contrast those that have long contracts are just sitting smiling. Those who bet on changes in futures’ prices are about to exit their position before the July contract’s first delivery notice due next week. On June 12 there were almost 7000 net short contracts registered.