Cotton futures settled at a 3-week peak Tuesday on fund and speculative buying sparked by crop losses in Alabama and Mississippi a day after Hurricane Katrina hit the South-eastern US, analysts said.
The New York Board of Trade's December cotton contract closed up 2.32 percent, or 1.14 cents, to 50.28 cents a lb, its highest settlement since August 10. Trading ranged from 49.25 to 51.10 cents.
March gained 1.13 cents to finish at 52.00 cents, while the rest of the board ended 1.10 to 1.30 cents firmer.
Cotton futures opened firmer on the back of speculative short-covering and fund buying that ran prices into buy-stop orders above 49.80 cents, which then vaulted the market to its highs before trade sales limited the gains, dealers said.
"I don't think the cotton damage is that bad in Louisiana as it is in Mississippi and Alabama. It could have been worse. It was only the Alabama/Mississippi border, but you've got some cotton that is tangled up and strung out, but you've got cotton in Alabama that is completely wiped out," said Alan Feild at iamhedged.com in Memphis, Tennessee.
Hail storms in West Texas also contributed to the buying today after about 50,000 to 100,000 acres of cotton crops were reported to be wiped out.
"As far as cotton is concerned, I think we're going to see about a half million bale loss between West Texas, Mississippi, Louisiana and Alabama, which is enough to get this market up," said one broker.
Another factor for the spike in prices today was that for the second day, leading indicators of commodity prices like the Reuters/Jefferies CRB index (RJ/CRB) and the Goldman Sachs Commodities Index reached new highs after Hurricane Katrina devastated coastal areas in three Gulf states.
"Right now people are buying commodities after this storm," said one dealer.
At 3:00 pm EDT (1900 GMT), the Reuters/Jefferies CRB Index of 19 commodity futures was at 331.21, up 2.47 percent, after reaching a new 25-year high at 333.45 earlier in the session. The index settled at 323.23 on Monday.
The CRB index is comprised of futures in live cattle, cotton, soybeans, sugar, frozen concentrated orange juice, wheat, cocoa, corn, gold, aluminium, nickel, unleaded gasoline, crude oil, natural gas, heating oil, coffee, silver, copper and lean hogs.
Floor dealers pegged resistance in the December contract at 50.65 and then at 51.00 cents, while support was seen at 49.80 and 49.10 cents.
They said estimated final cotton futures volume hit 16,152 lots, against 10,534 lots on Monday. Open interest eased 40 lots to 105,112 lots as of August 29.
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