Cotton futures finished Friday sharply higher for the second day in a row, as speculative players took heart from the implications of strong demand from the US Department of Agriculture's weekly export sales data, traders and analysts said.
In addition, speculators had pared long cotton positions since the declines off the multi-year highs hit in mid-July. Cotton futures found their bottom when they reached a near 3-month low on Monday, and speculators saw Thursday's healthy sales data as a strong buy signal, traders said.
"Today we rallied because of signs demand is strong. There were 20,000 calls purchased and 10,000 puts, which definitely gives you a signal of buying on the speculators' part," said one cotton trader. The New York Board of Trade's key open-outcry December cotton contract settled with a 1.90-cent gain at 60.97 cents per lb, and reached its highest level since August 10 at 61.80. The session low was 60.35 cents, well over the previous session high.
March cotton jumped 2.11 cents to end at 64.31 cents. Other contracts settled 1.90 to 2.10 cents higher. On the IntercontinentalExchange NYBOT electronic cotton market, the December cotton contract was 2.08 cents higher at 61.15 cents by 3:27 pm EDT (1927 GMT).
In the run up, some players wanted to make sure to buy ahead of the long US holiday weekend. The cotton market will be shut Monday along with other commodity and financial markets for US Labour Day. Dealers also said the trade were scale-up sellers all the way to the highs, and short-term profit takers pulled cotton off the session peak.
"There was very good trade selling, very good spec buying, and excellent volume of over 40,000 contracts. We haven't been this high since early August. And with the harvest upon us, trade has supply and have been selling. This is a windfall for them, said Sharon Johnson, senior cotton analyst at First Capitol Group in Atlanta.
Open-outcry volume in Friday's cotton market was estimated around 15,000 lots and screen trade reached a hefty 27,000 lots. Open interest in the cotton market was at 199,040 lots as of August 30, down 372 lots from the previous session. Along with huge volume, ending the week near 61 cents on the December contract was seen as a sign the buying will continue.
"Profit taking is why we settled off the highs. But rallied back to above 61 cents in the electronic market, which is viewed as a strong buy signal," said one trader.
In addition, Johson said the record highs booked this week in the wheat market have given cotton a strong underpinning. "We're spelling cotton these days w-h-e-a-t. The explosion in wheat price this week has gotten a lot of talk going about whether producers will forego planting cotton in order to plant wheat this fall. Given the difference in price, it certainly makes sense from a producer's standpoint," Johnson said.
On Thursday, USDA reported net export sales figures for upland cotton from the current marketing year increased by 447,700 500-lb running bales, 13 percent above the prior week. Broker Flanagan Trading Corp said he sees support in the December cotton contract at 59.20 and 59.80 cents, with resistance at 62.80 and 64.50 cents.