US cotton futures finished up by their daily limit on Wednesday as modest trade buying coupled with a slump in the dollar helped the market rebound after the previous session's sharp losses, analysts said. Cotton on ICE Futures US galloped last Friday to its highest since the American Civil War but retreated rapidly on fund liquidation and profit-taking, and prices sank 2.7 percent on Tuesday after a Chinese rate hike boosted the dollar.
ICE Futures US key December cotton contract rose by its 4.00-cent daily limit to end at $1.1426 per lb on Wednesday, posting a session low of $1.0942. The trading range came within Tuesday's $1.0925 to $1.1475 band. Volume traded in the cotton market stood at 19,691 lots by 2:45 pm EDT (1845 GMT), almost 10 percent below the 30-day average at 21,818 lots, preliminary Thomson Reuters data showed.
The dollar headed for its worst day in more than three months after an influential consultancy said the Federal Reserve planned to buy $500 billion of Treasuries over six months. A weaker dollar makes raw materials denominated in the greenback cheaper for non-US users. In China, the Zhengzhou Commodity Exchange's May cotton futures last traded at 24,390 yuan per tonne, up 305 yuan from the previous close.
"I think you're going to set back some (tomorrow), but the bullishness of cotton is still here," said Lou Barbera, an analyst for brokerage VIP Commodities, adding that "mills are still buyers" in the market. The market has rallied since July due to tight stocks, strong fiber demand and buying by funds that flocked to cotton because they see it as the next big thing in commodities.
Mike Stevens, an independent analyst in Louisiana, said he had never before seen a market move limit-up in "apathetic" dealing. Fundamentally, analysts said the cotton market continued to attract strong consumer demand from China, and supply and demand have driven cotton ending stocks to their lowest since 1995.
Barbera believes that of the total volume, some 2,200 lots were in switch trade as players rolled positions out of spot December and around 1,700 lots were done at the daily limit top. That put outright volume closer to 15,000 lots, dealers said. The market will be analysing the US Agriculture Department's weekly export sales report due on Thursday to see whether demand remains strong despite the spike in values. Cotton brokers expect total US cotton sales to range from 400,000 to 500,000 running bales (RBs, 500 lbs each), from sales last week of 647,000 RBs. Further pressure on prices is expected in the next few weeks when investment funds begin to roll their positions forward in the spot December contract as it gets ready for first notice day in deliveries next month.
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