Cotton futures rumbled to its highest close in over two years Monday on a fresh round of speculative fund buying but some analysts are getting worried the market is massively overbought and fibre contracts would need to correct lower soon. ICE Futures US benchmark December cotton contract gained 0.36 cent to finish at 86.43 cents per lb, the highest settlement close for the second position cotton contract since early March 2008.
-- December contract at highest close since March 2008
The contract traded from 85.75 to 86.85 cents, which is below the Friday top of 87.30 cents. "We're flying 40,000 feet (up) and the air is getting thin," Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia, said in describing the market's seemingly insatiable rally.
Some analysts believe the rally may still have enough legs to hoist the market higher because open interest in cotton remains below the levels seen in March 2008.
Open interest in cotton in March 2008 exceeded 300,000 lots. Total open interest in cotton stood at 216,862 lots as of August 27, from 215,723 lots previously, the exchange said.
The volume traded in the market on Monday was very light though. Total cotton contracts traded stood at 5,885 lots at 2:53 pm EDT (1853 GMT), some 61.28 percent below the 30-day average of 15,199 lots, according to preliminary Thomson Reuters data. A report by Mike Stevens, an analyst for brokers SFS Futures in Mandeville, Louisiana, said: "No one argues that both the technicals and fundamentals are bullish and the upside is still open."
He added though that "unless world economies crash, supply/demand statistics will continue to be tight for the remainder of the season." Brokers Flanagan Trading Corp sees resistance for December futures at 87.50 and 88.65 cents, with support at 86.40 and 85.55 cents. Total volume traded Friday reached 16,030 lots, from the previous 13,569 lots, according to ICE Futures US data.