"Since the topical theme at this time is the commodity supercycle I wondered what your reaction to ICE futures exchange intervention today - article FT -" Exchange tightens reins on rampaging cotton market" and the Reuters article-"Exchange poised to tackle cotton rise". Will this intervention have the desired effect and dampen down the animal spirits within the cotton market or will it have the opposite effect?"

Eoin Treacy's view Thank you for alerting us to these developments. Here is a section from the Reuters article you mention:

Hoping to prevent a repeat of 2008, when a sharp rally followed by a steep plunge roiled the industry, ICE Futures U.S. approved a rule change. The new rule would require investors with more than 300 lots in the spot contract to prove they are adequately hedged going into delivery.
Separately, the U.S. Commodities and Futures Trading Commission, the country's commodities regulator, said it has approved an expansion of the daily trading limits in the cotton market.

Both developments deflated the market, analysts said. Cotton prices jumped to a record high at $1.8122 per lb in early trade. But as the exchange mulled its move, investors launched a massive liquidation spree. Futures sank the 5 cent limit before ending 4.36 cents down at $1.7186 in volatile dealings.

The exchange announced the rule change after the market closed. It was designed to prevent a repeat of the wild market swing in 2008 that drove two cotton houses out of business, sparked a merger and spurred calls for the government to impose position limits in cotton and other commodity markets.

We have been alert to the possibility of a margin squeeze over the last month as prices for a number of economically sensitive commodities have surged. Higher commodity prices threaten to destabilize the "well anchored" inflationary expectations fostered by central banks, so there is legitimate cause to anticipate some form of intervention as raw material costs rise. Late last year, a number of clothing companies announced that they would have to raise prices to allow for higher input prices which raised the potential for action to contain cotton prices.

As far as I understand it, the measures announced are aimed at combating the massive backwardation that has developed in the cotton market. The spread between the 1st and 2nd month contracts peaked near 13.5¢ just before Christmas and has since declined to below 5¢ which is still wide by historical standards. This rule change should help to further decrease the roll yield on futures positions and may also stifle additional speculation in near-term contracts.

This section from today's Plexus cotton report highlights the continued tightness in this year's supply. Here is a section:

While trade shorts will be forced to cover, Index and Hedge Funds don't have to do anything unless they want to. With this massive inversion they may actually decide to stay long and simply roll their positions profitably from one futures month to the next. In order for the longs to give-up this lucrative set-up, the shorts will have to offer a price they can't refuse. This week's strong rally provided such an incentive, as some specs decided to cash in this morning, setting a steep correction in motion. It may have been a combination of factors that caused some of these spec longs to square up, like the high price itself, overbought 'technical' readings, a stronger dollar, the exchange and CFTC starting to scrutinize positions and uncertainty ahead of tomorrow's acreage report.

Although this correction may have further to go, we are of the opinion that this is simply another correction in a bullish trend and not a trend reversal. We have seen this kind of "two steps forward - one step back" action before and have no reason to believe that the overall pattern has changed. As long as physical prices continue to hold up as well as they are (A-index set a record at 205.05 cents today) and we are seeing 20 markets on the US export sales report competing for the little cotton that remains available, we have to assume that this bull market has some life left in it.

Cotton hit a near-term peak near 180¢ yesterday before pulling back to form a rather large key day reversal. It has followed through today and a countermanding upward dynamic will now be required to question scope for at least a deeper consolidation of recent powerful gains. A break of the progression of higher reaction lows, with a sustained move below 140¢, will be required to confirm that a medium-term peak has been reached.