Cotton futures rose on Wednesday, finishing near a four-week high, as investors remained bullish a day after the US government cut a crop estimate. Business may slow with top consumer China about to celebrate Lunar New Year and switch trade the main feature of dealings in fibre contracts into next week, they said.
The key March cotton contract rose 0.66-cent to end at 72.82 cents per lb, moving from 71.54 to 73.91 cents. It was the highest finish for cotton on the spot daily charts since the middle of January.
Volume in the March contract hit 24,628 lots at 3:08 pm EST (2008 GMT). The spark for the market was the Tuesday USDA report which cut its estimate of US 2009/10 cotton ending stocks to 3.3 million (480-lb) bales, down 1.0 million bales from last month's estimate and from the 6.34 million bales in beginning stocks for this season.
Sharon Johnson, cotton expert for First Capitol Group in Atlanta, Georgia, said the buying completed the covering by investors who covered their short positions in the spot contract.
The surge in cotton has driven mills to the sidelines, as they wait for prices to go back to around 70 cents in the May and July contracts before booking orders, she said. For now, cotton futures will be dominated by switches as players get out of positions in spot March before it goes into first notice day for deliveries after next week. "With China on vacation (for Lunar New Year), we're not going to do much except rolling," said Johnson.
The market will have to wait another day for the USDA's weekly export sales report, whose release was reset to Friday due to severe winter storms that struck the eastern United States.
Analysts said the market would turn its focus by next month to prospects for new-crop cotton, especially with the release on March 31 of the USDA's annual potential plantings report. Brokers see resistance in the March contract at 73 cents, with support at 72.25 and 71.25 cents. Total volume traded Tuesday hit 58,159 lots, against the previous 41,591 lots, according to data from ICE Futures US. Open interest in the cotton market stood at 164,093 lots as of February 9, down from the prior count of 162,140 lots, the exchange said.