New York cotton ekes out gains even after weak USDA crop report

US cotton futures closed higher on Friday, as a solid domestic Chinese price helped cushion the blow of another bearish monthly crop report, but the bounce still left the market down 1 percent on the week. The US government raised its 2012/13 forecast for global cotton inventory to above 80 million 480-pound bales for the first time due to larger-than-expected output in the United States, the world's third largest producer, and falling demand from China, the world's largest consumer.
While analysts and traders expected the increase, surpassing the 80 million mark reinforced concerns about rising supplies and long-term demand as mills use more man-made fibres. The most-active December cotton contract on ICE Futures US settled 0.81 percent higher at 69.26 cents per lb but ended the week down more than 1 percent. Preventing a further fall after testing 69 cents this week is the Chinese market, which pays double US exchange prices, traders said. As part of a program to support its millions of farmers, Beijing has set prices at around $1.40 per lb.
"The US fundamentals are loosening and adding pressure on prices. But at the same time you've got the price support mechanism in China which is (preventing) any price plunge," said Gary Raines, chief economist for INTL FCStone. He sees prices ranging between 65 and 75 cents per pound until the end of the year. The market could pop higher by planting season in the new year, if farmers switch from sowing cotton to planting grains, which have soared this year due to a savage drought in the Northern Hemisphere summer.
In the short term, the Goldman Sachs index roll continued, pressuring the market, and prices were more volatile due to the expiry of December options. For a second week, speculators slashed bullish bets in futures and options, according to the latest US Commodity Futures Trading Commission (CFTC) data. Speculators reduced their net long position in the week to November 6 by 15,676 contracts, bringing the net long position to a tiny 180 lots, the data showed.