Cotton futures in New York closed up for a second straight day on Friday, staging their best rally in three weeks, as the Federal Reserve's third stimulus action for the US economy boosted it and a number of other commodity markets. Prices of crude oil and copper hit multi-month highs, pulling along fellow industrial commodity cotton, a day after Fed Chairman Ben Bernanke pledged to buy $40 billion worth of mortgage debt every month until the US jobs situation improves.
"This is a Bernanke rally. With a QE3 announced, there's a scramble to buy everything and those short on cotton had to rush to cover," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana. Cotton's benchmark December contract in New York settled up 2.37 cents, or 3.2 percent, at 75.90 cents per lb, moving between 73.53 and 75.95. Stevens said the market could test 77 cents and above next week if it held to the current momentum. "As long as we don't go below 74 cents, the high is open."
December cotton was down in the first three sessions of the week, hitting a one-month low by Wednesday, after the US government raised its estimate for global cotton stockpiles in 2012/13 to a new record. It rebounded slightly on Thursday, rising 0.3 percent, after US data revealed the country's biggest weekly export sales for cotton since June.
The vast majority of those exports were headed for China, the first concrete sign since June that the world's largest consumer of cotton may have resumed buying. Beijing has been preparing to kick-start its second year of buying, although it is also due to auction off some of its existing reserve to make room for new purchases. It was not clear if the sales data released on Thursday were a result of Beijing's efforts to replenish its strategic cotton reserve, or if mills have restarted importing after fresh licenses were distributed last month.
Fundamentally, the outlook for cotton remains somewhat weak, despite the bullish mood for most commodities with the advent of the Fed's third round of quantitative easing, or QE3. The market has been bogged down by long-term concerns though about waning demand and a record surplus that have kept prices under 80 cents per lb since May.
In its Wednesday report, the US Department of Agriculture increased its estimate for the global cotton surplus to a record of 76.5 million 480-pound bales due in part to a drop in consumption and imports by China. The new forecast boosted by nearly 2 million bales last month's estimate - already the highest since USDA records began in 1960. A large carryover from last season was also a factor.
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