NEW YORK: Cotton futures rose on Tuesday as mills viewed early lower prices as an opportunity to buy and pushed the market to recover from the session's initial losses.
The most-active May cotton contract on ICE Futures US rose 0.61 cent, or 0.7 percent, to settle at 87.33 cents per pound. Prices touched a 10-month high of 88.78 cents a lb on Friday.
The fiber closed just near its 10-day moving average of 86.30 cents, which has served as a support level, and traded only as low as 86.23 cents throughout the session.
"The big sell-off never comes during the day, and mills have to buy, or they have to shut down," said Ron Lawson, a partner at commodity investment firm LOGIC Advisors.
Prices have rallied more than 15 percent since the start of the year, as speculators boosted their bullish bets on cotton futures and options to the highest levels since September 2010.
While the surge has been driven by speculators, the high prices have not yet deterred physical buying, with recent shipment and sale levels seen as strong. The US Department of Agriculture revised its forecasts for global consumption higher on Friday in light of the recent strength of those levels.
US merchants and growers have said they see global supplies tightening, pointing to rising demand for imports from India, where consumers purchase raw fiber to turn into a semi-finished product to sell to China.
They have also cited recent concern over supplies in Brazil, where a caterpillar infestation has plagued cotton crops in its second-largest growing region. Brazil and Australia are the two major exporters in the southern hemisphere.
Cotton's year-to-date rally comes on the heels of two years of losses, as lower-priced, man-made alternatives eroded demand for the natural fiber and global stockpiles grew.
The world is expected to see a record global surplus for the marketing year to end-July. More than half of those projected stocks are expected to be part of China's stockpiles, viewed as unavailable to the global market.
The Chinese government has been building its strategic stocks since 2011, paying above global prices to support farmers. China is expected to have enough cotton in its stocks by the end of July to meet its fiber demand for more than a year.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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