Cotton futures settled on Friday at its highest level in 15 years on investment fund and Chinese mill buying combined with a bullish US government crop report. Values may push past the all-time record in the days ahead, analysts said.
Cotton surged before the US Agriculture Department published its much anticipated monthly supply/demand report earlier Friday, but the market took off after the USDA's cotton figures came out. China provided the catalyst. USDA sliced its estimate of China's 2010/11 cotton production by 1.0 million (480-lb) bales to 31.5 million, upped its Chinese import forecast to 13 million bales from 12.75 million and dropped its ending stocks forecast for the world's No. 1 consumer to 14.72 million from 16.01 million bales.
"We're going to go (higher) as long as the Chinese have the appetite to buy cotton," said Mike Stevens, an independent cotton market analyst in Mandeville, Louisiana. Sharon Johnson, cotton expert at First Capitol Group in Atlanta, said sheer momentum should move the market up next week although she is cautious that fibber contracts are getting overextended to the topside.
Stevens said he did feel cotton would stop at $1/lb but was now not so sure and a challenge of the all-time record high at $1.172 is possible. "I wouldn't bet against this (market)," he said. ICE Futures US benchmark December cotton contract climbed the 4.00-cents limit to trade at $1.0775 per lb, the highest level in 15-years.
The contract gained 3.42 cents up, a gain of 3.3 percent on the day, to finish at $1.0717 per lb. The session low was at $1.045. On the week, December cotton futures are up almost 10 percent. The next three nearby months climbed the limit before pulling back at the close of trade.
Total volume traded stood at over 31,000 lots at 3:15 pm EDT (1915 GMT), more than two-thirds above the 30-day average around 18,000 lots, preliminary Thomson Reuters data showed. Technicians said the cotton market, basis the spot daily charts are approaching overbought levels, but analysts said funds may ignore that and keep buying cotton with demand running at such a strong level. Traders said cotton got a jolt higher as buyers from China, which had been on holiday from October 1 to 7, returned.
"(The) Chinese bought strongly," said Stevens. Johnson said no major changes were seen in the USDA report except for the Chinese figures. She said the USDA apparently believes the "high (cotton) prices are not having any effect on consumption." The level of fund interest in the market has not appreciably flagged since the rally lifted cotton prices over $1 per lb starting last week. Open interest in the cotton market has remained above 231,000 lots since mid-September and stood at 232,123 lots as of October 7, ICE Futures US data showed.