Cotton futures rose for the second day in a row on buying from Chinese mills
Wednesday, along with reports that weather may be interfering with cotton
planting in some parts of China.
The commodity extended its gains overnight when cotton hit key technical
levels that spurred additional buying.
Cotton for July delivery rose 1.08 cents, or 1.3%, to settle at 83.28 cents
per pound on ICE Futures U.S.
"We have continued buying by Chinese mills," said Sharon Johnson, senior
cotton analyst with First Capitol Group in Atlanta.
As was the case Tuesday, this enabled cotton to avoid falling in response to
outside markets, such as weakness in equities that can prompt worries about the
economy and thus demand for commodities.
China restricts cotton imports, but periodically establishes import quotas.
Last week, the country announced an additional 2010 import quota of 800,000
metric tons to meet strong domestic demand. The buying allowed under this quota
is giving the market a boost this week. However, Johnson said, buying appeared
to abate at higher levels.
John Flanagan, president of Flanagan Trading Corp. in Fuquay-Varina, N.C.,
said there are reports suggesting China might allow still another import quota.
This boosted futures for the "old crop," he said. This is represented by the
July contract, with December representing the "new crop" currently being
planted. The 1.3% gain in the July futures outpaced the December, which added a
more modest 0.3%.
Meanwhile, analysts said there are concerns about weather impacting China's
crop. Weather service Meteorlogix said heavy spring rains and periodic cool
temperatures have been unfavorable for early planting in eastern and western
cotton-growing areas.
"Since they are so short on cotton, they can't have anything go wrong at this
point in time," Johnson said.
July cotton hit a two-week high of 84.13 cents overnight. As the market
rallied, speculators who previously sold, betting on lower prices, began buying
to offset their positions, Johnson said. This may have picked up as the market
surged above the 50-day moving average, which stands around 82.17 cents.
Technical chart buying was triggered when the July futures broke through
resistance around the 82.50-cent area, analysts said.
ICE daily cotton stocks decreased by 1,936 500-pound bales Tuesday to total
108,782 bales, with 810 bales awaiting review, according to exchange data. This
decline in stocks might have also contributed to the strength, one broker said.
ICE cotton open interest-the number of active positions left at the end of
the session-increased by 3,213 positions Tuesday to total 184,262, according to
exchange data.
Electronic volume as of 2:30 p.m. ED (1830 GMT) Wednesday was estimated at
24,275 lots. In floor options trading, there were approximately 5,135 calls and
1,841 puts, according to exchange data.
Close Change Range
July 83.28c up 1.08c 81.75c-84.13c
December 78.11c up 0.20c 77.66c-78.24c