US cotton futures finished up the daily maximum on Tuesday on investor and speculator short-covering as players awaited release of a government crop report at the end of the week, brokers said. The key May cotton contract on ICE Futures US rose the 7-cent limit to end at $2.0806 per lb, with the session low at $1.9934. The new-crop December cotton contract gained 4.21 cents to end at $1.4197.
Total volume traded in the cotton market was around 30,000 lots, about 30 percent above the 30-day norm, Thomson Reuters preliminary data showed. Open interest was 195,689 lots as of April 5, the highest in 8-1/2 weeks, according to ICE Futures US figures. "I suspect some of Tuesday's and today's rally is due to spec short covering," said Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta, Georgia.
She said that changes in the open interest "should answer the question if this is more new longs or just short covering or some of both accounting for the limit bid" in the spot May contract. Mike Stevens, an independent analyst in Louisiana, said the reversal "off the $1.87 area (on Tuesday) off trade/mill support turned the speculative sentiment in a flash."
He added: "Sometimes markets are 90 percent sentiment and 10 percent fundamentals." Cotton market players are also getting ready for the release on Friday of the US Agriculture Department's monthly supply/demand report. Traders said the market will pay attention to any adjustments in consumption and stock levels. The first estimates for the 2011/12 cotton season will be released by the USDA in its May production report. The market has already digested the USDA's estimate of US cotton sowings and players are keeping an eye on the very dry conditions in the top growing area of Texas, which is expected to plant about half of the US cotton crop.