"The December contract has been in a free fall for a long time now. (The higher settlement) is mostly based on technical factors. A slow halt in the really quick drop rather than any sort of recovery," said Gabriel Crivorot, analyst at Societe Generale in New York.
Prices earlier plunged to their weakest level since the end of August, at 66.33 cents per lb. That kept the contract in oversold territory with a relative strength index (RSI) of about 20, well below the oversold level of 30. "The current selloff has been the result of aggressive speculative and trade selling," Peter Egli, director of risk management at British merchant Plexus Cotton, said in a note.
"Given the still sizeable speculative net long position in December, this selling pressure could persist as long as speculators feel a need to get out of the cotton market."
The December contract registered its third straight week of declines, down over 3 percent for the week. "We still have not had any significantly negative news on weather or crops in the US, China or India," Crivorot said. "It still looks like the crops, besides having a large area, will also have yields that could exceed the original estimates."
Prices could fall further if the weather continues to be favorable for crops and funds continue to cut their net long positions, he said. The speculators cut a bullish stance in cotton by 25,303 contracts to 45,183 in the week to June 20, Commodity Futures Trading Commission data showed on Friday. The fifth straight weekly cut brought their net long position to the smallest in about a year.
Total futures market volume fell by 14,092 to 27,728 lots. Data showed total open interest fell 2,717 to 202,249 contracts in the previous session. The Thomson Reuters CoreCommodity CRB Index, which tracks 19 commodities, was up 0.75 percent.