ICE cotton gained for the third straight session and hit a 1-1/2 week high on Wednesday as investors covered short positions ahead of a US Federal Reserve statement and a Thursday report expected to show another week of strong export sales. The most-active front-month March cotton contract on ICE Futures US rose 0.66 cent, or 1.1 percent, to settle at 59.44 cents a lb after rising to as much as 59.48 cents a lb, its highest level since January 16.
Speculators, who raised their net short position to its largest in nearly four months in the week ended January 20, have been covering those shorts so far this week since the Commodity Futures Trading Commission's Commitment of Traders report was released on Friday after market close. That short-covering continued today ahead of the release of the US Department of Agriculture's weekly export sales report on Thursday, which traders expected to be strong for the third week in a row, as historically low price levels in recent weeks have encouraged mill buying.
"Generally, when you get down to this price level and you see prices bounce back, it says business is being done," Rose said. "At this level, there's probably going to be considerable sales." Last week, upland cotton sales reached 470,300 bales, a marketing-year high and up 89 percent from the prior four-week average, as top-consumer China increased its sales and bought 174,500 bales from the United States.
Rose added that some short-covering from earlier in the session was due to expectations that the Fed may signal an intention to delay raising interest rates in a statement on Wednesday which was released at 2 pm EST (1900 GMT), around 20 minutes before fiber's settlement. Lower interest rates encourage investment in riskier assets like commodities, including cotton. The Fed said the US economy was expanding "at a solid pace," seen as a signal that it remains on track to raise interest rates later this year.