New York cotton futures closed higher Tuesday on combined commercial and speculative buying as the market rebounded from several sessions of weakness, with brokers saying fiber contracts could post further gains in the days ahead.
Key December cotton jumped 1.27 cents to finish at 49.11 cents a lb, ranging between 48.20 and 49.20 cents. March surged 1.35 to 50.95 cents. Back months went up 0.50 to 1.32 cents.
"We can extend this by a couple of cents to the upside," Keith Brown, president of commodity trading firm Keith Brown and Co in Moultrie, Georgia, said when asked if the market rally had the legs to march higher.
Cottons surge was also stoked by news that China will buy about 300,000 tonnes of cotton which is equivalent to about 1.38 million (480-lb) bales. The Chinese want to replenish government reserves, prop up sagging domestic prices and lift farmers income.
Sharon Johnson, cotton expert for Frank Schneider and Co Inc in Atlanta, said the only question about the news would be the time frame of the purchases * whether it is being done in the coming weeks or months.
Analysts said cotton headed higher since futures were heavily oversold and the market, basis the key December cotton contract, has managed to hold support around the mid-40 cents area.
"We were really overdone so it was time to come back," one said.
Market sources said they were also waiting for news on growing conditions facing the US cotton crop and the problems facing cotton plants in key producers like China.
Further out, the trade will be waiting for release of the weekly US Department of Agricultures weekly export sales data on Thursday. They will also gauge the impact of the testimony of US Federal Reserve Chairman Alan Greenspan on the US dollar which would affect the pace of US cotton sales.
A daily report by brokers Flanagan Trading Corp said resistance in the December cotton contract would be at 49.30 and the psychological target of 50 cents. Support was forecast at 48.50 and 47.50 cents.
Floor dealers said estimated final volume amounted to 8,000 contracts, from the prior tally of 4,523 lots. Open interest in the cotton market rose 98 lots to 77,294 lots as of July 19.