Cotton futures surged to a five-month high on Friday, boosted in speculator buying and concern over tight supplies in the United States, the world's top exporter. The benchmark December cotton contract on ICE Futures US surged 1.53 cents, or 1.7 percent, to settle at 93.32 cents per lb, after climbing to 93.72 cents, the strongest level for the second-month contract in five months.
-- Fibre climbs near 94 cents a lb
-- Speculators boost bullish bet to highest since March
-- Rains stoke worry over tight US supplies
Renewed interest from speculators has come as a technical "break-out" on August 7 turned fibre's chart bullish and prompted a rally of almost 9 percent in the last eight sessions, dealers said. A monthly US Department of Agriculture (USDA) report on Monday fuelled the rally, as the agency cut its forecast for US production, citing lower yields in the Southeast region, and reported lower-than-expected carryover stocks.
"Weather is always a precipitating factor to speculative interest," said Spencer Patton, founder and chief investment officer of Steel Vine Investment in Chicago. Expectations of rains in the Southeast region of the United States continued to stoke concern over crop damage and lifted prices to fresh highs on Friday.
In March, front-month prices surged to a one-year high of 93.93 cents a lb as speculators boosted their bullish cotton stance to a five-year high. The non commercial dealers have renewed their interest in recent weeks. They raised their net long position in cotton futures and options in the week ended August 13 to the highest since March, US government data showed on Friday. Open interest has continued to climb, reaching the highest level since April on Thursday, according to the most recent exchange data.
A crop expected late has lifted the benchmark December contract to its steepest premium over the March 2014 contract since March. Still, investors could take profit at key resistance near the March highs, according to Patton, and traders said that the run-up has cooled demand already seen quiet in recent weeks. "A move up this quickly is going to hit export sales. That could be the counterpunch to the news earlier this week of lower yields," Patton said.
The most recent weekly US government export data showed that China remained the most active buyer of US cotton, though the reporting period did not include the steepest price run-up. The report also showed cancellations of shipments of bales in Japan and smaller amounts in a few other countries. The world is forecast to hold record inventories by the end of July 2014, but more than 60 percent of those are expected to become part of China's stocks.
Beijing began government stockpiling program in 2011, paying above global prices to support farmers. The policy has led to voracious demand for lower-priced, foreign cotton in China, the world's top textile market. Dealers eyed next week's US government export data for signs that the recent price rally has deterred buying or prompted cancellations of previously-booked orders.
