KANSAS CITY (Dow Jones)--Cotton futures climbed to their highest in 15 years
as tight global supplies, uncertainty over Indian exports and strong U.S.
shipments fed the bullish frenzy.
Speculative fund buying took nearby October cotton to a new 15-year top of
97.75 cents a pound Friday on ICE Futures U.S. in New York. Most active
December rallied to 98.79 cents--also a 15-year peak.
October cotton rose 2.68 cents, or 2.8%, to settle at 97.61 cents. December
added 2.46 cents, or 2.6%, to 98.22 cents a pound.
With prices at such lofty levels, markets have a tendency to correct
themselves as buying drops off and begins to limit consumption. Cotton has seen
no such signs.
"We see commercial demand from textile mills rising," said Luis Rangel, vice
president for commodities derivatives at ICAP Futures in Jersey City, N.J.
Tight global supplies of cotton--forecast to dip to 45.44 million bales at
the end of the 2010-11 crop year--are the smallest in nearly 16 years. Textile
mills worry that they won't have enough of the fiber to meet demand, so they
continue to buy even as prices rise, analysts said.
Mills also rushed in to buy cotton when India decided to delay registration
for cotton exports until Oct. 1, from a previously announced date of Sept. 15.
The delay was seen by many in the cotton industry as a tactic to allow India's
textile sector a chance to push for tighter export provisions to ensure it
would have enough cotton to satisfy demand and to help keep domestic prices in
check.
India had previously announced it would limit shipments to 5.5 million bales
in the upcoming 2010-11 crop year and would fix prohibitive taxes on exports
above that level.
The U.S. is shipping cotton at a torrid pace to meet world demand. Export
sales as of Sept. 9 had already exceeded half of the 15.5 million bales the
U.S. projects for the 2010-11 crop year, said Sharon Johnson, chief cotton
analyst at First Capitol Group in Atlanta.
Much of world demand is stoked by China, by far the largest global importer
and the largest buyer of U.S. cotton. Chinese imports in August totaled 240,000
metric tons, a gain of 119% from August 2009, the China Cotton Association
said.
U.S. producers are beginning to harvest the 2010-11 crop, which is badly
needed to help replenish extremely tight pipeline supplies. The U.S. Department
of Agriculture projects output at 18.84 million bales, a 55% increase over last
year, on larger planted area and much improved weather.
U.S. stocks in ICE-approved warehouses, last reported at 16,569 500-pound
bales, are just 1.5% of what they were in June, as continued strong demand
whittled down supplies.
Traders have also been concerned by wet weather in China possibly hurting
crop quality, and losses of up to 17% to the Pakistan crop due to devastating
floods.
Cotton prices will likely climb to $1 a pound, but they may see a period of
consolidation shortly thereafter, said Keith Brown, principal at Keith Brown &
Co. in Moultrie, Ga.
ICAP Future's Rangel said cotton futures may be nearing a short-term top,
though he agreed that $1 isn't out of the question.