Cotton futures finished on Wednesday near a two-month high on speculative fund buying as tight nearby supplies and steady demand for US cotton stoked an advance that should continue in nearby contracts, analysts said. The benchmark May contract on ICE Futures US rose 1.44 cents, or 1.5 percent, to end at 94.03 cents per lb, dealing from 91.90 to 94.08 cents. It was the loftiest close on the spot cotton contract since February 7.
Volume traded amounted to around 28,300 lots, about 15 percent over the 30-day norm, Thomson Reuters data showed. "Fundamentally, we've got reason to be upbeat," said Sharon Johnson, senior cotton analyst at commodities brokerage Penson Futures in Atlanta.
A prime catalyst for the move was tight supplies in the old-crop May and July cotton contracts. While world 2011/12 cotton ending stocks were pegged by the US government at a hefty 62.32 million (480-lb) bales, Johnson and other traders said the market is discounting the bearish tint of the figure.
Johnson said up to 40 percent of the stocks are in the "hands of China and India," which meant that cotton is only for their mills and "not accessible" for the world market. The tight supply situation is thus reflected only in May and July, with the new-crop December cotton contract adding 0.21 cent to close at 90.69 cents.
The trade is now awaiting release of the US Agriculture Department's weekly export sales on Thursday to gauge fibre demand in the market. On Friday, the USDA will release its keenly awaited annual potential plantings report. A Thomson Reuters survey of industry participants showed they expect US 2012 cotton sowings to be down about 13 percent from last year, or about 12.74 million to 12.76 million acres, because of higher prices in grains such as soybeans.
In early February, the industry group National Cotton Council had pegged US 2012 cotton sowings at 13.63 million acres (5.5 million hectares), down 7.4 percent from 2011 cotton plantings of 14.72 million acres. The main reason for the switch, traders say, is the high price of grains such as soybeans compared to cotton.
Open interest, an indicator of investor exposure, fell for the second day in a row after rising for 12 straight sessions. It stood at 189,215 lots as of March 27. On Friday, open interest in the cotton market was at 190,909 lots, the highest since February 9, ICE Futures US data showed.