Cotton futures rose to one-month highs on Wednesday on fresh buying driven by concerns about dry weather in Texas, the country's No 1 growing state, and as investors prepared for a key US crop report due Friday. Gains were tempered though by news that India, one of the world's top producers and consumers, started selling its reserves to protect its domestic textile mills from costly imports.
"The talk of releasing India stocks has helped keep a lid on the market," said the broker. US traders worry that the tenders would curb demand from the country's textile mills, but sales have been limited so far because prices have been too high. The most-active July cotton on ICE Futures US rose more than 1 percent to as much as 88.11 cents per lb, the highest since April 11, breaking out of a recent 83-88 cent range ahead of the US government's monthly crop report.
Prices settled off those highs, up 0.53 cent, or 0.6 percent, at 87.68 cents per lb. They are likely to hit technical resistance at 88.52 cents, according to Knight Futures analysis. Grains were broadly lower on Wednesday as dry weather in the US Midwest bolstered hopes that growers will be able to resume planting on schedule. In cotton, participants prepared for the Department of Agriculture's first US supply estimates of the coming crop year, which starts on August 1. Many analysts expect US and global crops to be hefty though lower than current yields.
Knight Futures cotton specialist Sharon Johnson expects the global carryover in 2013/14 to rise to a record 84 million 480-lb bales, from this season's 82.9 million. "Depending on swings in supply and demand and the price of cotton versus other fibres, that number could easily swing by 5 million bales or more in either direction," she said. "China's policy will also impact that number if only from the standpoint of how much is truly available to the world."
Extreme weather conditions, either too much or too little rainfall depending on the region, has resulted in a wide range of estimates for the United States. Some fears about weather eased after forecasts of rain in Texas on Thursday, although any precipitation would be unlikely to offset the months-long drought that has plagued the state's farmers. Friday's USDA report will also be the first estimates for the corn, wheat and soybean crops, which have also been affected by weather conditions that could cause some farmers to switch acres to cotton from other crops.