The combination of strong ongoing demand, upbeat comments at a U.S.
Department of Agriculture forum, strength in equities and anticipation of an
export-sales report all enabled cotton futures to close sharply higher
Thursday.
The commodity extended its gains to 1 1/2-year highs when prices hit key
technical levels that spurred additional buying.
Nearby March cotton settled up 180 points, or 2.39%, at 76.97 cents per pound
on ICE Futures U.S. The May contract, which has the most open positions,
finished 202 points, or 2.65%, higher at 78.13 cents and peaked at 78.30, the
strongest level since September 2008.
Several observers said sentiment was helped by presentations at the USDA's
annual Agricultural Outlook Forum. Tight world supplies are improving prospects
for U.S. cotton exports, said USDA Under Secretary Jim Miller.
This comes at a time when cotton demand is already supportive, market
watchers said.
"Export sales reports have fluctuated back and forth, but overall have been
pretty strong," said Jack Scoville, vice president at Price Futures Group.
Meanwhile, he said, most recent economic data has shown signs of improvement.
"So you've got to think the downside is somewhat limited."
Rogers Varner Jr., president of Varner Brothers, characterized recent cotton
demand as "either very good or ravenous." He characterized much of this as
"pipeline replenishing" and "inventory building" by mills that had run their
cotton supplies down.
"They've spent the last few months trying to pick up the pieces," Varner
said.
John Flanagan, president of Flanagan Trading Corp, said traders were exiting
short positions in March cotton ahead of the approach of first-notice day.
"There is also an expectation of a good export-sales report," he said. The
report is coming out a day later than normal, on Friday, due to the President's
Day holiday at the start of the week.
Cotton may have drawn some spillover support from gains in other industrial
commodities, including crude oil and copper, Varner said. Scoville pointed out
that equities also were higher as cotton closed. This often supports
commodities since it suggests hopes for a stronger economy, which in turn means
more demand for items such as copper, crude oil and cotton.
Technical buying accelerated the gains in May cotton as the market moved up
through the 76.50-cent area, said Sterling Smith, CTA and market analyst with
Country Hedging. This was chart resistance after the market stopped slightly on
either side of this the last two sessions.
Later in the day, the contract also took out the Jan. 4 high of 77.83.
ICE daily cotton stocks increased by 11,207 500-pound bales Wednesday to
total 502,701 bales, with 22,481 bales awaiting review, according to exchange
data.
ICE cotton open interest--the number of active positions left at the end of
the session--decreased by 984 positions Wednesday to total 163,007, according
to exchange data.
In electronic volume as of 2:30 p.m. EST (1930 GMT) Thursday was estimated at
32,994 lots. In combined floor and electronic options trading, there were
approximately 6,128 calls and 3,020 puts, according to exchange data.
Close Change Range
March 76.97c up 180 pts 74.73c-78.00c
May 78.13c up 202 pts 75.71c-78.30c