Cotton futures rose 1 percent on Thursday on encouraging US export sales and tight physical supplies, rebounding from the previous session's sharp selloff after prices touched a two-year high. Investors bought cotton contracts after US weekly cotton export sales for both the current year's crop and next year's climbed from the previous week's levels.
On Wednesday, the fiber sank 2.5 percent as late-day profit-taking offset speculative buying and knocked prices off two-year highs, with volatile trading further roiled by a massive blow-out in the far forward backwardation. "We probably sold off more we should have yesterday, and export sales here were favourable today, so that allows us rally back," said Sharon Johnson, a cotton specialist with KCG Futures in Atlanta.
The benchmark May cotton contract on ICE Futures US closed up 0.90 cents, or 1 percent, at 92.56 cents a lb. Cotton steadied after prices on Wednesday soared more than 3 percent to as high as 97.35, a fresh two-year high. Prices moved in a massive 6.52 cent range on the day, the widest range in almost two years.
Nearby buying pushed July prices, representing the end of the 2013/14 season, to a 13-cent premium over December, the benchmark for the next season's US crop, reinforcing expectations that traders will sell any stock against July to avoid carrying over fiber into the new season.
Backwardation in the market rekindled memories of the tumult in 2011, when prices soared to records above $2 per lb as a drought devastated crops in Texas. As mill demand evaporated due to the high prices, prices more than halved. The wild gyrations in prices this week reveal the conflicting factors at play. China's efforts to offload its strategic stockpile could release huge inventory on to the market, while US supplies by the end of this season will be the lowest in decades.
The market largely ignored news that China, the world's largest cotton buyer, will require local mills to buy more of the fiber from its bloated state reserves in exchange for import allowances this year, three sources with knowledge of the matter said on Thursday.