Cotton breaches 9-mth high on demand expectations, contract roll


* U.S. weekly export numbers expected to be strong – broker

* May-March spread widens to highest since April 2010

* Exchange stocks climb to a more than 2-1/2-year high

By Chris Prentice

NEW YORK, Feb 20 (Reuters) – Cotton rose for a second day to the highest level since May 2012, on expectations of continued strong demand from Chinese consumers and the March contract rollover, as the May-March contract spread widened to the most since April 2010.

The most-active May cotton contract on ICE Futures U.S. settled up 0.33 cent, or 0.4 percent, at 84.46 cents per pound. Earlier, it touched 85.24 cents a lb, surpassing Tuesday’s high of 84.87 cents. It was the highest level since May 2012.

Chinese consumers returned from the new year holiday this week and expectations that they will continue to purchase large quantities of U.S. cotton have supported prices, despite long-term forecasts of a record global surplus by the end of the 2012/13 crop year, the majority of which is expected to be held in Chinese inventories.

“People tend to think we may continue to see some stronger export numbers,” said Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia, citing the U.S. weekly export data expected on Friday.

Last week, strong export data relieved concerns that recent high prices would deter buying, particularly in China, the world’s largest consumer.

Prices have surged more than 10 percent since the start of the year largely on speculators’ buying, as noncommercial investors boosted their long positions in cotton to the highest level since September 2010.

May prices also found support as investors moved their positions from the spot March contract as it nears its expiry date of March 6. Open interest totaled more than 133,000 lots in the May contract, compared with about 12,000 lots in March, according to Thomson Reuters data. The second month surpassed spot as the most active contract last week.

Trading volumes were heavy, reaching about 35,000 lots, compared with a 30-day average of about 24,000, preliminary Thomson Reuters data showed.

March cotton in ICE inched up 0.10 cent, or 0.1 percent, to close at 82.28 cents a lb.

The May-March spread widened for a seventh straight session to 2.18 cents a lb, putting the second month at its highest premium to the spot since April 2010.

That steep premium has come as certified stocks have climbed. They totaled more than 288,000 480-lb bales on Tuesday, the highest level since July 2010, according to ICE data. Another nearly 58,000 bales awaited delivery on Wednesday.

The first date of delivery against the March contract is Feb. 22, though a spread at such a steep contango may make it economic to store fibers, rather than sell them. (Reporting By Chris Prentice; editing by Andrew Hay)

Source: Reuters