Cotton futures rose by their daily limit to a new 15-year high on Thursday due to suspected mill purchases by China and speculative fund buying sparked by a fall in the dollar to a 2010 low, analysts said. The dollar sank against a basket of currencies as a widening of Singapore's foreign-exchange trading band hammered the greenback.
A weak dollar often spurs buying of commodities, many of which are priced in the US currency. "You've got pressure in the dollar and the Chinese market was higher," Bill Nelson, an analyst at commodity consultants Doane Advisory Services, said of the spike in cotton.
ICE Futures US key December cotton contract climbed by the 4.00 cent daily limit to trade at $1.1487 per lb by 10:54 am EDT (1454 GMT), up 3.6 percent. The day's low was $1.109. For the third time in three sessions, cotton traded limit-up and the rally stemmed from the same combination of investment fund and mill buying.
The second position March cotton contract also rose by its limit, to $1.1097. Brokers said with cotton cash prices at levels way above the futures market, the momentum of the rally remained intact. "Until the (cotton) futures outpace the cash market, we're not overbought," said Ron Lawson, cotton analyst at commodity consultants logicadvisors.com in Sonoma, California.
One complicating factor is that investors will soon need to roll their positions as first notice day for deliveries in the December contract looms in about five weeks. "This upside may only last for another two to three weeks," said Sharon Johnson, cotton expert at First Capitol Group in Atlanta. She said by then, December would go into "liquidation mode" with options expiration due by mid-November.
There is also some market concern that excessive heat may have affected the quality of cotton being harvested in the US Southeast and Delta states. To gauge demand, the market will scrutinise the US Agriculture Department's weekly export sales report due on Friday.
Cotton brokers believe the USDA will peg US cotton sales at between 300,000 and 500,000 running bales (RBs, 500-lbs each), against 647,000 RBs in last week's report. US cotton sales in the last four weeks have hit 2.9 million RBs. "The Chinese are still in there and that is keeping this market well supported," a broker said.