By Rene Pastor
NEW YORK (Reuters) - Cotton prices jumped againTuesday, closing above $1/lb for the first time in 15-years dueto buying by mills and speculative funds amid tight globalsupplies and bad crop conditions in some producing countries,analysts said.
Analysts said some speculative funds are still going intocotton because they believe prices will keep rising due tostrong consumer demand and adverse weather plaguing majorcotton producers and consumers China and Pakistan.
But other analysts said the rally could slow as the U.S.harvest picks up in the coming weeks.
The key December cotton contract climbed 1.42 centsto finish at $1.0079 per lb, the highest close on the secondposition cotton contract since 1995.
The contract hit a new 15-year peak at $1.0237.
The next most-active March cotton added 1.54 centsto conclude at $1.0021. (Graphic:http://link.reuters.com/saw74p )
Peter Egli, director of risk management at trade housePlexus Cotton Ltd. in Chicago, said the narrowing of the spreador difference between the December and March contracts may be asign the tight supply situation is starting to ease.
"I see a ... few signs of a medium-term top in the U.S.because of a narrowing of the spreads," he said. "Maybe there'sa change coming".
Sharon Johnson, cotton expert at financial advisory FirstCapitol Group in Atlanta, said a combination of speculativefund and mill buying powered cotton on Tuesday.
But she and Egli said the pace of the U.S. cotton harvestis picking up and the rally is starting to show signs that itmay slow.
On Monday, the U.S. Agriculture Department's weekly cropprogress report said the U.S. cotton harvest stood at 13percent of the crop, from 8.0 percent last week and thefive-year average of 10 percent.
Even as cotton futures rallied to over $1, trading volumehas slowed.
Total cotton volume traded at 4:00 p.m. EDTreached 23,054 lots, up nearly two-thirds over the 30-dayaverage at 14,254 lots, preliminary Thomson Reuters datashowed.
But the total Tuesday was down by a third from Monday's36,209 contracts traded in the market.
"It's still very strong. The trend is still parabolic,"said Egli. "(But) this will eventually run its course in thenext few weeks."
"I think we're topping out this week," said Johnson.
Egli and other analysts said they believe many of thebigger funds who piled into cotton at the start of the rallyare almost done buying the market.
That can be seen in the market's open interest, which hasrisen over 50 percent since July. But the pace of the increaseseemed to slow Monday as it stood at 234,917 lots, up ameager 220 lots from the prior 234,697 lots, ICE Futures U.S.data showed.
"The smart money is already in the market," said Egli.
Another critical bit of news on demand would be the USDA'sweekly export sales report on Thursday, which will help confirmif consumption is still running strong.
Last week, USDA reported total U.S. cotton sales of 844,200running bales (RBS, 500-lbs each), almost a five-fold spikefrom last week's level, which helped set up this week's rallyin the market past the $1 mark.