New York cotton ends sharply higher

US cotton futures settled sharply higher on Monday on speculative and option-related buying as players piled back into the market, threatening to ignite a fresh rally to record territory, analysts said. Cotton futures soared last week to their highest in almost 150 years, but then on Thursday endured their biggest one-day fall since early December, Thomson Reuters data showed. Year-to-date, cotton is up almost 16 percent.
The key March cotton contract on ICE Futures US rose 6.65 cents or almost 4.0 percent to end at $1.7451 per lb, dealing from $1.6476 to $1.7486, a level representing the top of the 7-cent allowable daily limit. Total volume reached some 33,300 lots, almost 60 percent above the 30-day norm, Thomson Reuters preliminary data showed.
Mike Stevens, an independent analyst in Louisiana, said the market jumped when options-related buying hit fibre contracts. "While today doesn't negate the reversal, it surely puts it to the test," he said, referring to when cotton traded at a record $1.8122 last week then ended the day nearly limit-down.
The last time a key reversal, which is when a market hits a record high then ends lower, happened in cotton was November 10. Analysts are waiting to see whether the Cotlook A index, the average price of the five cheapest cotton brands, will rise further given strong demand. The A index was quoted on Monday at $1.9755/lb, down 4.00 cents on the day.
The market is also awaiting the release on Wednesday of the US Agriculture Department's monthly supply/demand report. Most in the trade expect no major change in world cotton demand, but high prices are seen eventually forcing a change in the consumption figure. The National Cotton Council of America, an industry group, said US 2011 cotton plantings would likely reach 12.5 million acres, but most feel the number will be much higher since the rally in cotton only took off in the middle of the month. A Reuters survey at the Beltwide Cotton Conference last month forecast US 2011 cotton plantings from 12.48 million to 12.53 million acres, a five-year high and an increase of around 15 percent from last year's cotton sowings of 11.04 million acres.