US cotton futures ended modestly higher on Thursday, reversing morning losses following a slightly bearish USDA supply/demand report, when funds and speculators saw the dips as buying opportunities, traders said.
"I think cotton turned higher because beans and wheat put more pressure on cotton to move higher. As those prices move up, they are already at price levels that will capture new crop on cotton acres. So, cotton then moves up to try to defend the acres," said broker John Flanagan of Flanagan Trading Corp in North Carolina.
He added that the market was continuing to look ahead to the next crop year, when cotton production and plantings are forecast to fall below the current 2006/07 crop.
The New York Board of Trade's key December cotton contract settled 0.13 cent higher at 67.05 cents per lb. The day's range spanned 66.30 to 67.35 cents, but fell short of the 67.50 high hit Wednesday, which dates back to March 2004. Most other contracts closed with gains of 0.05 to 0.55 cent, with the December 2008 contract setting a new lifetime peak.
The IntercontinentalExchange NYBOT electronic cotton market's December contract increased 0.21 cent to 67.13 cents a lb by 3:43 pm EDT (1943 GMT). Flanagan and others said they thought both speculators and funds decided to buy cottons declines once the somewhat bearish reaction to the cotton crop report from the US Department of Agriculture ran its course.
A smaller cotton crop was forecast in the USDA's July supply/demand report for the 2007/08 crop year. Traders and analysts said they viewed the report as neutral to bearish, with US crop estimates coming in above market expectations.
The USDA lowered its projections for the US crop in the coming year to 17.50 million (480-lb) bales, down from the June USDA production report estimate of 18.80 million bales.
But, based on expected harvested cotton acreage and a yield of 820 lbs per acre last year, analysts had expected the US cotton crop forecast to come in closer to 16.8 million bales. Some forecasters expected higher crop estimates of 17.40 million, still below the USDA's July projection.
On June 29, USDA estimated cotton plantings at an 18-year low of 11.06 million acres, sending shock waves through the cotton market that eventually drove prices up to a series of highs last seen in March 2004, and causing many forecasters to lower their production outlook. Flanagan kept next resistance for the December contract at 67.70 and 68.30 cents, and support at 65.90 and 65.18 cents. Open interest in the cotton market increased by 3,100 lots to 218,139 lots as of July 12, NYBOT exchange data showed.
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