Cotton futures closed Tuesday above $1 a lb for the first time in 15 years on fresh investment fund buying, tight supplies and strong demand in the market, analysts said. The key December cotton contract climbed 1.42 cents, up 1.43 percent on the day, to end at $1.0079/lb, the first time benchmark cotton closed over $1 since 1995.
The contract traded as high as $1.0237, again the highest intraday level in 15 years. Cotton prices on Tuesday galloped to a 15-year peak for the second straight day due to more buying by investment funds and mills looking at tight global supplies and bad crop conditions in some producing countries, analysts said.
Lou Barbera, an analyst for major brokerage VIP Commodities, said there was no slackening of interest in fibre contracts from investors piling into cotton because they believe prices are headed higher. Analysts said funds are still going into cotton because consumer demand is running at a strong level and tight supplies caused by adverse weather in major cotton producers and consumers China and Pakistan will push prices up.
"We think mills are out there buying again," Barbera said, adding that until sizeable new-crop US cotton supplies become available, the supply situation will remain tight. The key December cotton contract hit a new 15-year peak at $1.0237 per lb, and was trading 1.84 cents higher at $1.0121 at 1:33 pm EDT (1733 GMT).
Cotton jumped past $1 per lb on Monday for only the second time since 1960. It hit a high of $1.172 in April 1995. Total volume traded in cotton was running slightly higher than average, at 16,304 lots at 1:33 pm EDT (1733 GMT), nearly 15 percent higher than the 30-day average at 14,254 lots, preliminary Thomson Reuters data showed.
"That means you still see some of these funds going into the market even though prices are getting a bit toppy because they feel the rally is not done," a dealer said. But Tuesday's volume paled in comparison with the trading volume in the previous session, which ICE Futures US data said reached 36,209 lots, more than double the 30-day average.
Cotton has increased over 40 percent in value since July on strong consumer demand and the belief by investment funds that cotton was undervalued. That can be seen in the market's open interest, which has risen over 50 percent since July. The pace of the increase seemed to slow on Monday as it stood at 234,917 lots as of Monday, from the prior 234,697 lots, ICE Futures US data showed.
Analysts said the modest increase in open interest reflected the fact that most of the buying was done by mills scrambling to secure supplies in the prior session. Traders said the market was keen to see the weekly US Agriculture Department's export sales data on Thursday. This should confirm the market's view that mills are still buying cotton despite the sharp rally. Last week, USDA reported total US cotton sales of 844,200 running bales (RBS, 500-lbs each), almost a five-fold spike from last week's level.