Cotton futures prices enjoyed a nice bounce in early June, after spending several weeks in a downward spiral.

According to Sharon Johnson Crump with Knight Futures, there were several reasons for the turnaround, in which December cotton futures rallied from the mid-60s to settle at 72.28 cents on June 7. “Specs had moved from being very long to somewhat short the past four to five weeks, and they are now aggressively reversing some of the positions.

“The macroeconomic picture also showed improvement with Chinese interest rate cuts, pushing stocks and commodities along with it.”

Crump noted that old crop fundamentals were improved with better export sales and shipments. Crump believes that USDA will increase its U.S. export estimate in its June 12 World Agricultural Supply and Demand Estimates, which could drop U.S. ending stocks to below 3 million bales.

Therefore, “U.S. fundamentals are bullish against a backdrop of bearish world fundamentals. I think we have a squeeze of sorts in the July due to excessive spec/hedge shorts covering, with reduced levels of long index fund rolling.”

Crump believes a short-term low is in place for cotton “especially given how far prices had dropped and the good value they had obtained. Some additional increase is likely, but beyond the USDA planting report (Friday, June 29), seasonal pressures on prices should re-exert themselves. For a number of reasons, prices may not trade that much lower — low 60s to high 50s, into this fall. But the long-term implications into this winter and next spring are very bullish for the 2013-14 crop year.”

In the past 21 weeks, 5.997 million running bales of upland cotton have been shipped for a weekly average of 286,000 bales, Crump noted. “If that same pace is maintained, upland shipments will exceed the official target of 10.44 million running bales by 900,000 bales.”

According to a Reuters article, the cotton futures price surge on June 6 was the biggest daily percentage gain since April 2011.

The article noted that U.S. equity markets rose “as signs of urgent moves in Europe to rescue Spain’s troubled banks sparked a rebound in beaten-down shares, pushing the broad S&P 500 index through a key resistance level.”

Despite the rebound in prices, cotton prices are down about 25 percent for the year.