Cotton futures finished near a 3-1/2 month high on Thursday on broad-based buying sparked by a bullish report from the US Agriculture Department, brokers said. ICE Futures US benchmark December cotton contract rose 2.65 cents to close at 83.55 cents per lb. It was the highest close for the second position cotton contract since April 30, according to Thomson Reuters data.
-- Floods cloud Pakistan's cotton crop prospects
-- Market rallies on bullish USDA supply report
December traded from 79.69 to 83.90 cents, the 3.00 cent limit-up level for cotton. The last time the market rose the 3.00 cent limit was on April 20. Volume traded in the December contract reached a whopping 20,000 lots at 2:35 pm EDT (1835 GMT). Total volume traded at 2:35 pm was at 27,395 lots, up 81.6 percent over the 30-day average of 15,085 lots, preliminary Thomson Reuters data showed.
The catalyst for the rally was USDA's monthly supply/demand report, the first in the 2010/11 marketing year (August/July). World 2010/11 cotton ending stocks were cut to 45.61 million (480-lb) bales from 49.61 million last month. Consumption was raised to 120.87 million from 119.70 million.
"If realised, the stocks-to-use ratio of 38 percent would be the smallest since 1994/95," USDA said, reflecting a tight supply situation in the cotton market. Jobe Moss, an analyst for brokers and merchants MCM Inc in Lubbock, Texas, said the USDA data "reinforces" the upward trend in fibre contracts and provided a bullish surprise for the market. He said the December contract is now poised to make a run later in the year toward targets of 87.50 and then 90 cents.
Another bullish factor the report did not touch on is the impact of severe flooding on Pakistan's cotton harvest. Moss believes Pakistan has turned from a possible exporter of cotton into an importer of the fibre. Brokers Flanagan Trading Corp put resistance in the December contract at 83.60 and 84.55 cents, with support pegged at 82.75 and 81.65 cents.
Volume traded Wednesday hit 11,404 lots, compared with the previous tally of 15,804 lots, ICE Futures US data showed. Open interest in the No 2 cotton market was at 193,543 lots as of August 11, versus the previous 192,181 lots, the exchange said.