NEW YORK, Dec 2 (Reuters) - U.S. cotton futures finished the daily limit-up Thursday for the second straight session on modest speculative buying as tight supplies rekindled a rally in the market less than a month after it hit a record top, analysts said.
The market was inspired to a large degree by news that India is restricting cotton yarn exports. Strong outside markets, option-linked buying and a lack of selling by commercial accounts also boosted fiber contracts. Cotton is the second best performer on the Reuters-Jefferies commodity index, having risen 67 percent year-to-date. It is second only to silver's 69 percent rise.
(Graph: http://link.reuters.com/kew48n)
Demand is also running at a strong level, with most analysts estimating that with 80 to 90 percent of the U.S. cotton harvest already sold, supplies are going to be very tight in the first quarter of 2011. The United States is the world's leading cotton exporter.
"Everything's friendly from top to bottom," said Mike Stevens, an independent analyst in Mandeville, Louisiana. "The same bullish fundamentals are here. We just had this big shakeout at the end of November," he said, adding that the all-time high set on Nov. 10 of $1.5723 per lb could be eclipsed in the weeks ahead.
The benchmark March cotton contract on ICE Futures U.S. rose its 5-cent limit to end at $1.2634 per lb, with the session low at $1.2234. Under exchange rules, the daily limit would expand to 6.00 cents on Friday.
The market had lost nearly a fifth in value over the last two weeks since hitting the record top. Lou Barbera, cotton specialist at brokerage VIP Commodities, said speculative accounts which liquidated when the market corrected lower were coming back into the market.
The volume traded was notably modest at around 16,500 lots, more than 50 percent below the 30-day average above 36,400 lots, Thomson Reuters preliminary data showed. The market drew inspiration from the strong tone of cotton prices in China, the world's top consumer. Key May futures on the Zhengzhou Commodity Exchange was last done at 26,200 yuan per tonne on Thursday, up 900 yuan on the day.
The pace of U.S. cotton exports remained robust as well, an indication that demand shows no sign of slackening, market analysts said. The U.S. Agriculture Department's weekly export sales report showed total U.S. cotton sales at 636,900 running bales (RBs, 500-lbs each), more than double last week's sales.
The focus of the market will soon turn to prospective cotton plantings in the United States and in China in 2011. Analytical firm Informa Economics has already raised its U.S. cotton plantings forecast in 2011 to 12.2 million acres, which would be a 4-year high and up nearly 12 percent from 2010 cotton sowings of 10.909 million acres.
