US cotton futures jumped for the third straight day on Wednesday, settling up the daily limit, as Asian mills fuelled the rally on average volume. Cotton futures have rallied almost 25 percent since the middle of January, the latest wave of a historic run that began in 2010 and sent cotton prices to their loftiest levels in almost 150 years.
"It's basically mills panicking," said Lou Barbera, a cotton analyst for brokerage VIP Commodities. "Overseas mills are getting the ball rolling." Cotton is the biggest gainer of commodities on the Reuters-Jefferies commodity index in 2011, matching a feat it achieved in 2010 when it gained 90 percent for the year.
The key March cotton contract on ICE Futures US rose the 4 cent limit to conclude at $1.7622 per lb, with the session low at $1.73. Total volume stood around 20,400 lots, just above the 30-day norm, Thomson Reuters preliminary data showed. Powerful cyclone Yasi in Australia also worried the market because it would hit prime cotton-growing areas. Losses there could further crimp supplies in Asian markets, dealers said.
Sharon Johnson, senior cotton analyst at brokerage Penson Futures in Atlanta, said it is "possible there's a squeeze" in the US cotton market. But Johnson said a new exchange rule could alleviate concerns that a squeeze is underway. She explained that ICE Futures US may soon require investors to tell the exchange how they plan to hedge certain long and short positions in excess of 300 lots of the spot contract.
On Thursday, the market will look at the US Agriculture Department's weekly export sales report to gauge demand for US cotton. The market will then turn its attention to industry group the National Cotton Council of America, which will release its annual plantings survey for cotton at its annual meeting in San Antonio, Texas on Friday.
A Reuters survey at the Beltwide Cotton conference this month had forecast US 2011 cotton plantings from 12.48 million to 12.53 million acres, a 5-year high and an increase of around 15 percent from last year's cotton sowings of 11.04 million acres. The United States is the biggest fibre exporter in the world and such a rise in plantings is seen by some in the trade as not enough to satisfy global cotton demand.
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