Cotton gains as investors cover shorts on hopes of US-China trade thaw

ICE cotton futures gained for a second-straight session on Wednesday as investors covered their short positions on optimism over Sino-US trade ties, ahead of the US weekly export sales data.

The front-month December contract, rose 0.5% to 65.00 cents per lb by 12:36 p.m. EDT (1636 GMT). It traded within a range of 64.4 and 65.10 cents a lb.

"Short-covering from the speculators sort of pushed it up to this level, to the top end of the range. Also, optimism over the potential for a trade deal with China (supported prices)," said Jordan Lea, senior trader at DECA Global.

However, a good harvest, given the favourable weather conditions at present, and the possibility of no trade deal being reached between Washington and Beijing, could trigger a pull back in cotton, he added.

The natural fiber has slid by about 10% so far this year owing to a long trade tiff between cotton's top consumer China and one of the top producers, the United States.

On Tuesday, China offered 10 million tonnes of tariff-free quota to major Chinese soybean crushers to import soybeans from the United States.

Signs that the trade dispute will not be resolved quickly and concerns over its impact on global growth have roiled markets since its conception.

"The market is in surplus now and it will stay in surplus unless the price goes down," said Rogers Varner, president of Varner Brokerage in Cleveland, Mississippi.

The United States Department of Agriculture will release the weekly export sales report on Thursday. Meanwhile, as per the USDA's weekly crop progress report from Monday, 40% of US cotton was harvested compared with 32% a week ago.

Total futures market volume fell by 14,325 to 15,830 lots. Data showed total open interest gained 303 to 237,912 contracts in the previous session.