Cotton futures rallied on Monday, lifted by expectations that the US government next week will reduce its outlook for ending inventories in the United States, the world's top exporter. The most active May cotton contract on ICE Futures US closed up 1.19 cents, or 1.4 percent, at 88.33 cents a lb.
Commodities were broadly higher as Russia's intervention in Ukraine drove investors to safe havens such as gold. Twelve of the 19 components of the Thomson Reuters/Core Commodity CRB index gained. Economic reports on Monday showed manufacturing growth slowed last month in Europe and China, the world's top consumer of many raw materials, weighing on cotton prices early in the trading session.
However, cotton recovered and rallied on a sense of tight US supplies and growing expectations that the US Agriculture Department (USDA) will lower its outlook for US inventories by the end of the 2013/14 crop year end-July, dropping them below the 3-million 480-lb bale level seen critical. The USDA is due to release its monthly supply-demand forecast next Monday.
High prices have damped demand for fibre in recent weeks, but US exporters are on pace to beat expectations due to strong demand early in the season and a crop at a four-year low. The second-month set a six-month high of 90.44 cents a lb last week, piercing and then retreating from the key psychological level of 90 cents. "The market is trying to ration demand without killing it," said one US trader.
Dealers said that a large amount of on-call buying underpinned prices after mills chose to book bales and set prices later. Even so, traders warily eyed changes in government policies in top consumer China, as expectations have risen that the government will cut its selling price for bales in a bid to boost buying and whittle down ballooning inventories.
China's state reserves purchased 132,480 tonnes of fibre last week, its lowest this season, official statistics showed on Monday. Beijing has said it will scrap the stockpiling program it launched in 2011 that has driven up domestic prices and stoked strong import demand. Drought conditions across Australia's east coast is expected to cut output of key commodities next season. The Australian Bureau of Agricultural, Resource Economics and Sciences pegged the 14/15 cotton crop down 11.4 percent at 833,000 tonnes.