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Sep 20, 2010
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Funds pile into cotton; price soars to 15-yr peak

By
Reuters
Published
Sep 20, 2010

NEW YORK, Sept 17 (Reuters) - Investors have poured into a sizzling cotton market, with hedge funds and long-index funds jacking up their positions by almost 500 percent as fiber prices raced to their highest level since 1995, exchange data showed on Friday.


Cotton processing factory just outside of Yuli in Xinjiang, China. Photo : Corbis

The benchmark ICE Futures U.S. key December cotton contract CTZ0 ended Friday at a 15-year top of 98.22 cents per lb, having risen over 35 percent since July. It hit a session peak of 98.79 cents and is poised to hit the $1/lb mark next week.

Hedge funds and long-index funds sharply increased their positions in cotton from the middle of July when prices were hovering around 78 cents per lb.

"A lot of the hedge funds jumped in early when the price was still in the 70s," said a cotton dealer, who handles orders for both investment funds and commercial merchants. "The way things turned out, they already have a large profit in this run-up."

The funds felt cotton was undervalued since demand was coming on strong and ending stocks have been run down to levels last seen in the mid-1990s.

The U.S. government's Commodity Futures Trading Commission showed noncommercials with a net long position of 55,939 lots and managed money accounts with a net long position of 69,690 lots.

On July 23, the CFTC showed noncommercials holding a net long position in cotton of 9,780 lots and managed money accounts with a net long standing of 24,835 lots.

In a span of less than two months, noncommercials have increased their net longs in the market by nearly 500 percent and managed money positions are up by almost 200 percent.

ICE Futures U.S. data showed that open interest in the cotton market stood at a year low of 153,514 lots as of July 13. Since then, open interest in the cotton market climbed 50 percent to hit 231,896 lots as of Sept. 16.

With funds pouring in, the level of open interest and fund positions in the cotton market soared.



Pinning down specific positions of these funds is difficult because their buy and sell orders are sent through five or six different brokers, trade sources said.

"That is something they keep close to their vest. We know they came in, but just do not know the breakdown of those positions," another cotton analyst said.

In absolute terms, the expansion of fund investment in cotton was straightforward.

(Reporting by Rene Pastor; Editing by David Gregorio)

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