Cotton futures ended on Monday with strong gains, rallying late to a 2-1/2-week high, as a debt deal that seemed likely to pass the US Congress boosted sentiment and led to an improved technical picture, analysts said.
"Some of the rally is weather and a lot of it is economics. I think the market is feeling that we will come to an agreement regarding the debt-ceiling issue. That's more of a sentiment issue," said Bill Raffety, senior analyst for Penson Futures.
Overnight, traders showed little reaction to the announcement of a likely debt deal that would avert a potentially devastating default. "Last night, I was watching the market when they announced that a debt deal would pass and there was a muted reaction, almost nothing," said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana.
But as the US congressional vote neared, traders' spirits were lifted, sending cotton prices sharply higher. Key December cotton futures on ICE Futures US closed 3.28 cents, or 3.22 percent, higher at $1.0481 a lb. The range stretched from $1.0008 to $1.0532.
Since falling to a seven-month low of 93.20 cents early last week, cotton has risen over 13 percent to Monday's peak at $1.0532, a level last seen on July 14. The rally pushed December futures above a 20-day moving average for the first time since June 15. It was the contract's first close above the moving average since May 24.
Adding to the positive technical performance, December futures closed a gap at $1.0446 per lb, making last Tuesday's decline a near-term bottom and opening the door for a quick run up to $1.0885, Stevens said. Total market volume on Monday came in at 15,645 lots by 3:10 pm EDT (1910 GMT), about 3 percent above the 30-day average, according to Thomson Reuters preliminary data. Protracted heat in Texas has scorched cotton-growing regions there, causing some farmers to abandon half of their crops, according to analysts.
"The Texas crop is fried. A report from one grower in Texas said he is approaching $900 per acre on all the inputs so far. That's a huge sum of money, and a lot of that is for irrigation," Raffety said. He cited temperatures of greater than 100 degrees Fahrenheit for 30 consecutive days in some Texas regions for the withering crop. After Monday's close, the US Agriculture Department's weekly crop progress report showed 70 percent of the cotton crop was in fair to very poor condition.
Earlier, cotton prices fell in reaction to reports on Sunday that India had approved unrestricted cotton shipments, igniting fears that hefty supplies would be dumped on the US market. Later, many of those sellers bought their positions back when the Indian Supreme Court put a hold on export leniency. Friday's volume dropped to 11,273 lots, from 14,962 lots in the previous session, according to ICE Futures US data. Open interest in the cotton market increased to 143,649 lots as of July 29, the exchange data showed.