US cotton futures settled with sizeable gains on Thursday, racing to a 6-1/2-week high as hot, dry weather persists in Texas cotton fields and a report revealed substantial crop problems in China, traders said.
According to a field survey conducted throughout cotton growing regions by China's Cotton Research Institute, traders said, the crop in the world's top grower is off to the worst start in five years, plagued by floods, drought, hailstorms, freeze, sandstorms and aphids.
Traders said when you consider drought-like conditions in Texas fields and monsoon rains in India, the world's second and third biggest growers, prices were due to rally.
"For us to wait this long to find out if they're going to get one miracle rain in West Texas, and it rains on irrigated cotton and misses the dryland cotton that needs the rain, this market is severely undervalued. And then throw in problems China, India and Pakistan, it's going to blow your doors off," said Alan Feild of iamhedged.com in Memphis, Tennessee.
The New York Board of Trade's July cotton contract closed with a gain of 1.41 cents at 52.35 cents a lb, after surging to a high last seen on April 24 at 52.50 cents. The session low was 51.50 cents.
The December crop contract finished 0.91 cent higher at 57.49 cents, in a 56.95 to 57.60 range. Term cotton contacts were up 0.50 to 0.61 cent at the end. In China, the crop report said the worst weather conditions had struck the country's three top growing regions: the Xinjiang province, the North China plain and the Yangtze and Yellow River valleys.
The survey estimated a 25 percent lower crop yield in China this year, while other reports predict a whopping 51 million bale demand from the country, with some estimates even higher at 55 million bales.
"When you consider consumption - China's consumption in 2005/06 was 46.5 million bales - and they're going to consume 51 to 55 million bales this year, that's up 10 percent. We're running out of cotton," Feild said.
With weather problems in Texas and other US cotton regions, he and others have said the US crop will likely be 4 million to 5 million bales below last year's output.
"So, the market is going to have to react. And it's going to have to take care of a few things when it does," he said, including adding in a weather premium, covering outsized net short positions, get prices up to levels that trade can afford to operate and to ration demand with the higher prices.
In the aftermath of Wednesday's scattered showers in the US Southwest and Texas cotton regions, weather reports showed that most of the rain hit irrigated counties north of Lubbock, Texas, and slammed the crops with hail. But the rain missed the dryland fields, which desperately needed moisture.
Weather forecaster Meteorlogix predicted mostly dry conditions, with above-normal temperatures would continue in the area through Monday.
Elsewhere, the USDA releases its weekly US export sales data on Friday at 0830 am EDT because of the shortened holiday week. Floor dealers estimated Thursday's cotton volume at 33,000 lots, compared with Wednesday's record 55,376-lot tally. Open interest rose by 3,299 to 179,676 contracts on Wednesday.
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