Cotton futures settled higher Thursday on investor buying sparked mainly by news that China bought a large amount of cotton to replenish official stocks, analysts said. The key December cotton contract on ICE Futures US increased 2.32 cents or by 2.4 percent to finish at 99.50 cents per lb, moving from 96.81 to $1.0078.
Total volume traded Thursday hit around 38,400 lots, which would be the highest since early June and more than double the 30-day norm, preliminary Thomson Reuters data and ICE Futures US data showed. "The Chinese are buying," Ron Lawson, senior cotton analyst at brokerage logicadvisors.com in Sonoma, California, said. He said the Chinese apparently need to buy cotton to replenish state stocks and that the central government has made the decision to sow more grains than cotton.
The US Agriculture Department said China bought 998,000 running bales (RBs, 500-lbs each). Independent analyst Mike Stevens in Louisiana said cotton futures began surging ahead of the release of the report. The market digested news of Noble Group posting its first quarterly loss in a decade, part of which was blamed by analysts on cotton market losses.
This has followed US agribusiness and trading giant Cargill Inc, the world's 2nd largest cotton trader, posting a 66 percent drop in quarterly profit, but did not specifically blame cotton. On a technical level, dealers said the upside target would be $1.04 and the downside target at 95.78 cents for December delivery. Analysts said followers of index funds also continued to roll positions out of the December contract before it goes into first notice day for deliveries later in the month.
Open interest in cotton, usually taken as an indicator of investor exposure in cotton, stood at 168,672 lots as of November 9 against 165,589 lots as of November 8, exchange data showed. Total volume traded Wednesday came to 29,387 contracts versus the prior session's 36,055 lots which had marked the highest level traded since June 10, ICE futures US data said.