Cotton futures closed with strong gains on Thursday after gapping higher at the open and reaching a 10-day peak as buyers covered short positions following a robust US export sales report, traders said.
"When the export figures came out it looked like a big rash of speculative short covering hit the ICE (electronic market) and ran it up. It (December cotton) held its strength and technical indicators all turned positive later in the day," said Mike Stevens of Swiss Financial Services in Mandeville, Louisiana.
The New York Board of Trade's key open-outcry December cotton contract settled with 1.65 cent gains at 59.07 cents per lb, and reached a 10-day high at 59.25. December cotton surged at the floor open, setting a low at 58.40 cents. March cotton firmed 1.50 cents to 62.20 cents. The rest of the board had rallied 1.57 to 1.70 cents by the end.
On the IntercontinentalExchange NYBOT electronic cotton market, the December cotton contract was up 1.59 cents at 59.01 cents by 3:27 pm EDT (1927 GMT). Before the market opened, ICE futures raced higher when the USDA's weekly net export sales figures showed upland cotton sales from the current marketing year increased by 447,700 (500-lb) running bales, or 13 percent above the previous week.
The US Department of Agriculture reported new sales of 454,700 bales in the week ended August 23. Along with pima cotton, the weekly report posted total US cotton sales of 476,300 running bales. The government reported shipments of 322,900 in the latest week.
For the next marketing year, USDA reported net export sales of 12,000 RBs and new sales of 122,000 RBs in the August 23 week "Today's export sales were stronger than last week's and shipments were also strong. Cotton prices may finally be awakening to the fact that next year's supply of world cotton is likely to be materially lower than this year's production," said John Flanagan, in the Flanagan Trading Corp's daily cotton market report.
In seeing the stronger-than-expected export sales results, many players who had been building speculative short cotton positions as prices declined for several weeks to a 2-1/2 month low on Monday decided to bail out of those positions, traders said.
"All it needed to do was close above this week's previous high at 58.10 (cents a lb) to really start to look good. But it held its strength all day. It absorbed the selling and a lot of players had to cover those shorts," said Stevens.
He added many commercial players had complained that sales were slow, yet the last two government reports showed healthy cotton exports, adding that next week should also show strong sales. The cotton market will be shut Monday for the US Labour Day holiday.
Some participants are looking past the holiday weekend to focus on the upcoming cotton harvest in the United States and China, the world's top consumer of the cotton. Broker Flanagan Trading Corp said he sees support in the December cotton contract at 58.20 and 57.50 cents, with resistance at 59.25 cents.
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