Cotton futures ended with strong gains on Wednesday, lifted by speculative buyers who took it to a one-month high, after shrugging off a USDA report that most analysts deemed bearish because of an increased crop outlook for the United States and the world, traders said.
Traders said cotton prices opened lower in response to the raised crop estimates, but the bears were easily brushed aside by speculators with a longer term view of lost cotton acres. Mike Stevens, SFS Futures in Mandeville, Louisiana, said, "Early screen selling was only disappointed selling from the report and very fleeting. However, with the report out of the way, prices turned and headed back higher. Screen trading, presumably by speculators and funds, has been leading the way."
ICE Futures open-outcry December cotton contract settled with 0.93 cent gains at 62.57 cents per lb. It matched the August 9 high at 62.80 cents, but trade sellers prevented prices from breaking above that resistance level. March cotton was up 0.79 cent at 65.71 cents at the close. Other contracts finished 0.85 to 1.05 cent higher. On the ICE Futures electronic cotton market, December cotton rallied 0.96 cent to 62.60 cents by 2:55 pm EDT (1855 GMT), and reached a high at 62.81 cents.
The US Department of Agriculture released its monthly September supply/demand report before the open, showing an increased estimate in the 2007/08 US crop to 17.81 million (480-lb) bales, from 17.35 million forecast in August.
Further, it raised its projection for the 2007/08 world crop to 117.18 million bales from 115.92 million bales in August. But it pegged 2007/08 China cotton imports lower at 15.00 million bales from 16.00 million in last month's outlook.
"The report is exactly what I thought, and that's bearish. The (US) crop was raised to 17.812 million bales. It's bigger than expected and likely going to be bigger on future reports. As far as the world numbers, it's certainly bearish if you look at how big some countries crop are. Brazil, India, China, and Pakistan's crops are all bigger as world production was raised 1.26 mln bales," said Alan Feild, iamhedged.com in Tennessee.
Jobe Moss, broker at MCM Inc in Lubbock, Texas, said he saw the report as neutral to bearish, with larger-than-expected crop forecasts, but demand left unchanged at a strong 127.78 million bales. "But I really don't think the market's trading off that. I think it's trading off the wheat market, the soybean market and the possibility that there will be further shifts of acreage out of cotton and into those other crops. I think that's the underlying factor that keeps supporting it," said Moss. "We all know that with grain prices as high as they are cotton acres are going to come down but we've got a lot of supply," Moss added.
Stevens noted that the technical chart violation of last week's 62.26 high on the December contract triggered another round of speculative and fund buying that may drive prices up to a next target at the early August reaction high of 65.00 cents.
Total volume in Tuesday's cotton market was 19,826 lots. Open interest rose by 394 lots to 205,561 as of September 11. Broker Flanagan Trading Corp said it set resistance in open-outcry's December cotton contract at 63.25 and 64.05 cents, with support at 62.50 and 62.00 cents.