Cotton futures finished near a two-month top Monday on follow-through investor buying, and the market may be bracing for a run at the psychological $1 a lb level over the next few weeks, analysts said. The benchmark March cotton contract increased 0.58 cent to finish at 96.44 cents a lb, its highest settlement since the middle of November. The contract traded between 93.22 and 96.90 cents.
"It acts like it (the market) wants to try $1," said Mike Stevens, an independent analyst in Mandeville, Louisiana. Since bottoming out near 84 cents several weeks ago, the market has advanced by around 15 percent. Traders said the market may also be getting a boost as funds rebalance their portfolios and put more of their funds into the cotton market. They added that, fundamentally, cotton has been supported by buying from China to boost state reserves and in anticipation of slightly lower US cotton plantings.
There is also some concern that a persistent La Nina phenomenon could lead to dry conditions in areas such as Texas, the top US cotton growing state, which just endured its worst drought in a century. March cotton tried to grind its way toward the 100-day moving average around 97.30 cents, but failed. The weekly note of brokerage VIP Commodities said: "The world has a decent amount of cotton on hand. Until that is consumed there should be a natural ceiling in the market."
"In all likelihood, there will be a rally this week but how high remains to be seen. The last time we had broken through the 100 day moving average there was not conformation the next day and a 15 cent dip ensued," it said. Market players will now be looking toward the release on Thursday of the US Agriculture Department's monthly supply/demand report and the release early next month of the annual potential plantings survey from industry group National Cotton Council. Total volume traded Friday hit 12,367 lots, from the prior tally of 14,617 lots, ICE Futures US data showed. Open interest, an indicator of investor exposure, was at 146,885 lots on Friday from 147,711 lots on Thursday, the exchange said.