US cotton futures ended higher Thursday on investor buying prompted by a government crop report that cut US 2011/12 cotton production resulting from the worst drought in a century to hit the major growing area of Texas, analysts said.
The US Agriculture Department's monthly supply report reduced its outlook for 2011/12 US cotton output to 17 million (480-lb) bales from the 18 million forecast last month. The drought has hit hard cotton output in the world's top exporter and No 3 producer of the fibre.
The key December cotton contract on ICE Futures US jumped 2.84 cents to close at $1.3299 per lb, dealing from $1.3025 to $1.3455. The spot July contract jumped the 6.00 cent daily limit to conclude at $1.5105 per lb. Total volume traded Thursday reached around 23,500 lots at 2:48 pm EDT (1848 GMT), some 40 percent above the 30-day norm, Thomson Reuters preliminary data showed.
"The big news is the crop cut. It's so rare that they do it," said Sharon Johnson, senior cotton analyst at commodities brokerage Penson Futures. The last time the USDA reduced its estimate of US production from the May to June supply report was 1998. The first survey-based forecasts of crops like cotton and other grains do not become available until August.
"That was a surprise. That really tells you how serious the situation is," said Mike Stevens, an independent cotton analyst in Louisiana. July posted higher gains because players were worried about the tight deliverable supply situation in the contract ahead of first notice day for deliveries later in the month. "There's still talk about a squeeze in July," Johnson said.
Analysts said, the latest USDA reading may set the market up for another rally, after prices hit a record high early in 2011. Cotton was the best performing commodity of 2010, rising some 90 percent in value. The Texas drought is one of the worst in a century and cotton farmers are on the brink of collecting insurance payments by writing off their crops in a state that accounts for nearly half of all US cotton production. The weather forecast for the state calls for more dry and hot conditions through the weekend and into Monday, a report by forecaster Telvent DTN said.
Comments
Comments are closed for this article.