US cotton futures prices remained firm around 83 cents per lb on Wednesday as speculators continued their two-week buying spree and index fund purchases added further lift. Fibre shrugged off turmoil in the broader financial markets after US data revealed the world’s largest economy contracted in the fourth quarter and after the US Federal Reserve warned that economic growth has stalled.
—- Open interest highest since late October
Extending its longest rally in a year, the most-active March contract on ICE Futures US rose 0.57 cent, or 0.70 percent, to 82.96 cents per lb, its highest settlement since May last year. On a continuous basis, that was its loftiest price since mid-June. “There was nothing new today. You’ve got buyers willing to step in on any of the breaks,” said Sharon Johnson.
Some of the buying was due to the rebalancing of the Rogers International Commodity Index, brokers said. Selling has been minimal too. Last Friday has been the only down day of the past 11 and that was attributed to hedging as merchants took advantage of the price spike above 80 cents and to profit taking.
Brokers are advising merchants and farmers to sell their crop forward while December prices are above 80 cents. They settled at 81.11 cents on Wednesday, down 0.07 cent from Tuesday. The market was also on a weather watch due to heavy rains in Australia, the world’s No 7 producer, and the central and south-east United States facing an unusual threat of tornadoes and farmland in Texas, the United State’s largest growing state, remaining parched from the prolonged drought.
That is significant ahead of the US planting season in the spring. If conditions are unchanged in the US west, they will favour planting more-resilient cotton over grains even though prices of corn, soybeans and wheat are higher, brokers said. According to a poll earlier this month, US farmers are expected to plant one of the smallest cotton crops in two decades in 2013 as the fiber loses a battle for acreage to the more buoyant grains market.
Reflecting the recent flurry of activity, open interest continues to rise as speculators place fresh bets. The number of outstanding contracts breached 205,000 lots, the highest since end-October last year. Liquidity has started to shift into forward contracts of May and July, which is considered the old crop price for the 2012/13 season, ahead of first notice day and options expiry for March on February 8.
That will coincide with the much-anticipated US Department of Agriculture’s monthly crop report, which will be scanned for updates on the US abandonment rates and forecasts for demand from China, the world’s largest textile market. With the market facing a record inventory in the 2012/13 season, any bearish sign may derail the recent run-up, brokers said. Stocks jumped to 127,160 bales, their highest since mid-December, from 121,552 a day earlier. Another 32,631 bales are awaiting approval.