Cotton futures advance for second day on short-covering

ICE cotton eked out a gain on Wednesday on short-covering in heavy trading as the index fund roll neared its conclusion and mill buying under the market continued to underpin prices. The most-active March cotton contract on ICE Futures US closed up 0.37 cent, or 0.5 percent, to settle at 78.59 cents a lb, up for a second straight session.
The spot December contract edged up 0.9 cent, or 0.1 percent, to 77.97 cents a lb.
Prices traded in a tight range. While trading volumes were heavy, they were down from the previous day when spread-related dealings lifted spot prices as much as 1.9 percent and traders scrambled to cover short positions amid the fund roll. Open interest dropped by 5,779 lots to 173,674 lots on Tuesday as prices gained, the most recent ICE data showed, evidence of the short-covering.
The Thomson Reuters/Core Commodity CRB index closed slightly higher. The US dollar eased against a basket of currencies, buoying dollar-traded commodities as it made them less expensive to holders of other currencies. China may begin sales from its massive state reserves as early as this week, traders said.
Dealers eagerly awaited an announcement from Beijing, as the price set for the sales will determine the floor for global cotton prices and for import demand in the world's top consumer. "No one wants to aggressively sell here" in the absence of more news, said Sterling Smith, a futures specialist with Citigroup in Chicago. He cited China Reserve sales and a firmer sense of upcoming supplies in the world's top producers after harvest delays.
The start of sales may provide clearer direction for the market, which has stabilised in recent sessions after rumours the reserve would soon unleash its stocks pressured prices to the weakest levels since January. China's controversial stockpiling program has led to voracious demand for lower-priced foreign fibre, establishing a floor for the global market.
Weekly US government data issued after Tuesday's close showed the crop in the world's top exporter is well behind last year's in development after weather-related planting and growing delays earlier in the season. Exchange stocks rose from 181,132 bales to 190,507 bales on Tuesday, the most since July, exchange data compiled by Reuters showed.