NY cotton ends at 2-month high and may rise more

NEW YORK: Cotton futures finished Wednesday up their daily limit at a two-month top on investment fund buying and analysts said the momentum from the advance could well push fiber contracts higher the rest of the week.

Benchmark December cotton contract on ICE Futures US rose the 4-cent limit to close at $1.1034 per lb, with the session low at $1.0589. It was the loftiest close for cotton since July 8.

Since mid-August, the December contract has traded at a low of $1.0174 hit on Aug. 25 and a high of $1.09 set on Aug. 24.

Volume on Wednesday was almost 13,600 lots, around 15 percent above the 30-day norm, preliminary Thomson Reuters data showed.

The market surged on both fundamental and technical factors, dealers said.

News of floods in major cotton producer Pakistan and the announcement by top consumer China it would start stockpiling cotton bolstered the market. A close in the December contract above the Aug. 24 top of $1.09 further fueled buying sentiment in fiber contracts, traders said.

Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia, said cotton may next take out nearby resistance at $1.13 in the December contract.

"If we get over that, we're looking at $1.20 and $1.24," said Brown.

The sensitivity in the market to China and Pakistan stemmed from what happened there last year, market sources said.

Floods in Pakistan and poor yields in China in 2010 provided the spark for cotton futures to embark on its historic rally to record levels above first $1 and then $2 a lb.

Once cotton more than held its own when other commodity and financial markets stumbled on Tuesday, the stage was set for a breakout higher, Brown and other cotton traders said.

The market will now be looking toward the release of the US Agriculture Department's monthly supply/demand report on Sept. 12, especially since most of the trade discounted the figure for US 2011/12 cotton production in the August data as being too high.

The level of investor interest in the cotton market hit 147,827 lots as of Sept. 5, according to exchange data.

Copyright Reuters, 2011