New York cotton rallies to 14-week high

Cotton futures finished up Wednesday at a 14-week peak on speculative fund buying, with fibre contracts seemingly poised to run higher in the days ahead, dealers said. The New York Board of Trade's March cotton contract jumped 1.25 cents to end at 47.96 cents a lb, near the top of its 46.65 to 48 band. It was the highest close for the contract since finishing at 48.60 cents on October 11, 2004. May gained the same to 48.95 cents and the rest rose 1.15 to 1.23 cents.
Mike Stevens of SFS Futures in Mandeville, Louisiana, said funds have covered several thousand lots of their short positions and are itching to buy further.
"They're gearing up in that direction, to go with some long positions," he said. "It's the path of least resistance (for the funds)."
Large investment funds have apparently opted to increase their long positions in cotton and are now aggressively buying futures despite the bearish overhang of record crops in the US and in places like China.
But other analysts said the record harvest in 2004/05 will not likely be repeated while global cotton consumption is seen staying strong over the coming years, pointing in particular to robust fibre consumption in China.
Brokers Flanagan Trading Corp said any surplus stemming from the bumper production "are likely to be reduced to tight levels by the end of the 2005/2006 crop year."
"In the past, when world ending stocks increased by 10 million bales, as they did this year, it took two or three years to consume the surplus. But, now with world consumption at current levels, such a surplus can be used up in one year," Flanagan added.
Speculative buying from the opening bell overwhelmed scale-up trade and commercial selling in cotton as the market charged to highs last seen in October 2004.
The weekly New York Board of Trade spec/hedge report showed the funds with a net long position of only 16.7 percent, and analysts feel the funds can easily expand their net long standing in cotton to over 40 percent in the weeks ahead.
"The funds are showing no let up so we could see this stay strong for a while," a broker said.
Flanagan Trading said resistance in the March cotton contract lurks at 47.10 and 47.80 cents, with support at 46.60 and 46 cents.
Floor traders said final estimated volume amounted to 24,000 contracts, up from Tuesday's tally of 7,955 lots. Open interest rose 663 contracts to 94,731 lots as of January 18.