Cotton futures finished up and at a 1-1/2 week high on Tuesday, furled by sharp gains in agricultural commodities across the board and expectations of buying related to index rebalancing, analysts said. The key March cotton futures went up 4 cents or 4.4 percent to finish at 95.80 cents a lb, dealing from 91.85 to 95.80 cents. It was the highest settlement for cotton's spot contract since November 17, Reuters data showed.
Traded volume on Thursday was around 25,000 lots, almost doubled its 30-day norm, Thomson Reuters preliminary data showed. "There is expected to be an uptick in the weighting of cotton in the major indexes. This should translate into some market strength over the first few weeks of the year," VIP Commodities analysts said in a note. Some investors are buying cotton in anticipation that investment funds would increase the share of cotton in their portfolios when reweighting of assets getting the most funds gets underway later in January.
At the start of every year, the world's commodity index managers go through the annual rite of rebalancing their mix, shifting ratios that can swing billions of dollars from one market to another.
Cotton ended 2011 as the worst-performing commodity market of the year, falling around 37 percent from 2010 as a brief rally to record prices boosted output and decimated demand while a shaky global economy scared off investors. Since scaling a record top over $2.20 a lb in early March, cotton demand has shrunk and prices have more than halved. Total volume traded Friday reached 8,087 lots, versus the prior tally of 10,657 lots, ICE Futures US data showed. Open interest, an indicator of investor exposure, was at 152,144 lots as of Friday, against Thursday's level of 151,731 lots, exchange data showed.