Cotton futures closed with moderate increases on Friday, just off the five-week high set earlier in the day, as speculators continued to seek the fiber following a raft of strong US economic news this week suggesting demand might pick up down the road, analysts said. The December cotton contract in New York ended with a gain of 0.42 cent at 64.60 cents per lb. It hit a session high of 64.74 - its highest since August 13.
Wet weather had spurred some speculative buying early in the session, but when forecasters predicted a dry spell in some of the cotton growing regions, prices pulled off their peaks. Weather forecaster DTN projected mostly dry conditions or a few light showers through Friday and over the weekend. Others rejected the notion of the weather premium driving prices and attributed the consistent gains to speculators jumping on the band wagon of rising prices.
"I don't think fundamentals have had much to do with this rise. This week's (US cotton) exports shrivelled to nothing and next week it will be less. There is no shortage of cotton whatsoever," said Mike Stevens, broker at Swiss Financial Services in Mandeville, Louisiana. On Thursday, net upland sales of US cotton fell 49 percent from a week ago to 71,400 bales, data released by the US Department of Agriculture showed.
"This is strictly a matter of money flowing to the winning trade. The cotton bulls are on the longest winning streak since 1973. There has not been a single down day since September 1," Stevens added. As prices continue to rise, analysts noted, open interest has also jumped by more than 11,000 contracts in the first four days of this week, a huge amount for cotton. "That might be a warning sign that we may be getting top heavy, with too many players on the same side of the boat," said Stevens.
The total volume of cotton traded on Thursday fell to 8,928 lots from 11,894 lots traded on Wednesday, ICE Futures US said. Open interest came to 140,041 lots on September 17, up from 138,380 lots as of September 16. With a correction lower, however, there would likely be plenty of bullish speculators to buy the dips, driving prices up to new medium-term highs, analysts said.
Cotton's latest advance began in earnest on September 1, when speculators re-entered the market after a downward correction off 10-month highs achieved on August 13. In the latest rally, December cotton futures have gained 7.74 cents in just three weeks. Some analysts pointed to this week's strong US economic data for August suggesting the US recession may be over along with similar remarks by US Federal Reserve Ben Bernanke as reason for the renewed purchases of cotton futures.
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