US cotton jumped nearly 4 percent on Tuesday in its biggest one-day rally in more than two months as traders chased prices up on worries about the quality of fibre that the market will be seeing in the near term. Some traders said they suspected cotton coming off early harvest in fields in the south-eastern United States had high levels of "micronaire", resulting in coarse fibres that could break during the spinning process at textile mills.
Such fears led to an abrupt reversal in prices in a market that just days ago appeared doomed after the US Department of Agriculture issued one of its bleakest reports on cotton in decades. Cotton's most actively traded contract on ICE Futures US, December, settled at 74.86 cents a pound, gaining 3.5 percent on the day in heavy trading.
Thomson Reuters data showed volumes in ICE cotton at above 54,000 lots by 3:30 pm EDT (1930 GMT), some 220 percent higher than the 30-day norm. In terms of gains, it was the largest in a day for cotton since August 3, and the third consecutive day of market gains. Cotton also outperformed other commodities in US trading, topping gains on the Thomson Reuters-Jefferies CRB index, which tracks 19 raw materials markets.
Just last Thursday, December cotton fell about 2 percent after the US Department of Agriculture increased to a record high its forecast for world-wide stocks of cotton at the close of the 2012/13 season. Sharon Johnson, a cotton specialist at Knight Futures in Atlanta, Georgia, had said then that the USDA estimate was the agency's most bearish take on cotton since the 1970s.
But Keith Brown, who heads commodities broker Keith Brown and Co in Moultrie, Georgia, said the market was on a different spin now. "I think what the market is experiencing now is a quality problem, not a quantity problem," Brown said. "Merchants are concerned about getting the wrong kind of cotton, the low quality type, so they're buying the market up to ensure they get the right type of cotton when it comes time for December delivery." Brown said the price spike "could be a momentary event" because of the USDA cotton forecast.
Thursday's USDA report marked the third month in a row that the agency had increased its estimates for world-wide stocks of cotton since the new marketing season started on August 1. The latest revision put ending stocks 14 percent higher than 2011/12's 69.56 million bales.
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