The US cotton market closed higher Tuesday on end-of-the-month investor short-covering as the market ended November well below the all-time highs hit earlier in the month, although analysts said market fundamentals remained bullish. The key March cotton contract rose 1.58 cents to end at $1.1734 per lb, dealing from $1.1376 to $1.189. The contract was down 2.58 percent on the month, its biggest monthly decline since May, Thomson Reuters preliminary data showed.
Spot December rose 3.72 cents to close at $1.2623, and ended the month up 0.77 percent. The price of cotton on ICE Futures US stormed to an all-time peak of $1.5723 per lb on November 10, up more than 115 percent since July as strong mill demand from China, tight stocks and insatiable fund buying powered fiber contracts to their highest level since the US Civil War. "We were parabolic going up and parabolic going down," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana. At the height of the rally, cotton was up 95 percent year to date during the session on November 10, for the biggest gain of any commodity in the Reuters-Jefferies commodity index.
Since then, silver has moved ahead of cotton as the strongest gainer in the index, up almost 66 percent in the year to date versus cotton's 55 percent. (Graph: http://link.reuters.com/kew48n ) Cotton volume on Tuesday was light, with dealings of about 16,100 lots - nearly 60 percent below the 30-day average above 37,500 lots, Thomson Reuters data showed.
Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia, said fiber contracts moved up Tuesday mainly due to "end-of-the-month short-covering." "In the near-term, we may be choppy. In the longer-term, we may move higher," he said, predicting tight cotton supplies in the first quarter of 2011 while mill demand from countries like China remains strong. Evidence of liquidation by investors this month could be seen in the open interest in the cotton market, which dropped to near a four-month low at 194,507 lots.
Stevens said he did not expect the investment funds who stoked the rally to return to the market immediately. "They had a good quarter. The money managers don't want to expose themselves (to a market like cotton) with the Korea thing and the eurozone on the horizon," he said, alluding to tensions on the Korean peninsula and fears of an economic contagion from eurozone debt woes.
The market may have also received a boost from steadier Chinese cotton futures. The May cotton contract on the Zengzhou Commodity Exchange was last done on Tuesday at 25,375 yuan per tonne, up 585 yuan on the day. Industry analysts said that with most of the northern hemisphere cotton already harvested, the focus will gradually turn after the New Year to possible cotton spring plantings, especially in the United States. Analytical firm Informa Economics has already raised its US cotton plantings forecast in 2011 to 12.2 million acres, which would be a 4-year high and up nearly 12 percent from 2010 cotton sowings of 10.909 million acres.