"Here we go again with the contango and backwardation issues. At present there is an important backwardation on cotton. Jul 154.73 - Oct 130.33 - Dec 124.00.

"As far as I understand on the charts it is December that is mentioned as first month. You normally call first month the month with the most activity. But is Dec really the most active month on cotton for the moment?

"The problem is that my spread betting firm trades only July where the trend is different than on Dec. Probably for crop period reasons I suppose. Thanks for your help and with my kindest regards."

Eoin Treacy's view Thank you for this question which others may also find of interest. As you point out, we roll continuation charts with the most active contract. The December 2011 expiry currently represents almost 70% of the open interest on all cotton contracts traded on NYBOT-ICE. As you will see from this contract table cotton is in backwardation all the way out to December 2012.

To the best of my understanding December cotton represents the new harvest while July and October is still this year's crop. The October expiry only has 473 contracts open which does not represent very much liquidity and indicates July contracts are being rolled into December.

December cotton has been largely rangebound since February and is currently testing the lower side. It needs to continue to hold above 115¢ if the medium-term upside is to continue to be given the benefit of the doubt.

Chinese traded cotton has lost downward momentum but needs to sustain a move above CNY25,700 to break the progression of lower rally highs and indicate a return to demand dominance.