Cotton hits fresh 5-week high


Forexpros – U.S. soft futures were higher during early U.S. morning trade on Tuesday, with cotton prices hitting a fresh five-week top amid ongoing short-covering and as prices continued to draw support from signs of increasing demand from top consumer China.

Meanwhile, sugar futures consolidated below the previous session’s five-week high, while coffee prices continued to trade near 2-year lows.

Agricultural commodities received an additional lift from a broadly weaker U.S. dollar. The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.3% to trade at 81.99.

A weaker dollar boosts the appeal of U.S. crops to overseas buyers and makes commodities more attractive as an alternative investment.

Markets were eying the start of a two-day Federal Reserve policy-setting meeting later in the day, amid growing speculation the central bank will move to stimulate growth in the world’s largest economy.

A growing number of Fed watchers expect the central bank to extend its Operation Twist program, in which it sells short-term bonds to buy long-term ones. The current USD400 billion Twist program is set to expire at the end of June.

Investors also awaited the outcome of a Group of 20 summit in Mexico, amid hopes it could produce fresh measures to combat the crisis in Europe.

On the ICE Futures U.S. Exchange, cotton futures for July delivery traded at USD0.8515 a pound, rallying 1.9%. It earlier rose by as much as 2.2% to trade at USD0.8533 a pound, the highest since May 10.

Cotton prices have surged nearly 13.5% in the six sessions leading up to Tuesday, as sentiment on the fiber improved after the U.S. Department of Agriculture announced a huge sale of new-crop cotton to China last week.

China bought close to 94% of the 795,700 bales of the net export sales from the U.S. in the week ending June 7, in an attempt to boost government stockpiles after prices fell to attractive levels.

Prices slumped to a 32-month low of USD0.6617 a pound on June 4. But futures have been on an uptrend in recent sessions, gaining nearly 22% since then.

Some short covering ahead of the first notice of delivery for the July contract on June 25 provided further support.

Market players said that a large cotton trading house has put pressure on traders holding short positions in July to exit those positions.

Trading is normally intense in the cotton market in the run-up to the first notice day for deliveries, as most market participants seek to exit contracts to avoid having to deliver supplies.

Despite the recent gains, the fiber is still down almost 60% from a record in March 2011 as higher prices prompted farmers to plant more crops and demand in top consumer China slowed.