US cotton rose the 7-cent limit on Friday for the second day in a row on protective short covering amid worries about the situation in Libya and the potential for further mishap in Japan this weekend, brokers said. With a 3.6 percent gain, the active May cotton contract on ICE Futures closed at $1.9912 per lb, extending the gain from Wednesday, when the market settled at a three-week low of $1.8512.
-- Players fret over Libya unrest, Japan disasters
Still, for the week, the market is down 2.84 percent.
Open interest, an indicator of investment exposure in cotton, stood at 172,925 lots as of March 17, a level that is still near the lowest since late July 2010, data from ICE Futures US showed. Volume traded was estimated at 17,000 lots, the lowest level since February 28 and almost 50 percent below the 30-day norm, Thomson Reuters preliminary data showed.
"It's a helter-skelter thing, with everything going on around the world," said Mike Stevens, an independent analyst in Louisiana. He said the market got a boost from firmer Chinese cotton prices, with the September cotton contract on the Zhengzhou Commodity Exchange last done at 30,540 yuan per tonne, up 1,125 yuan on the day.
Strong stock markets and grains futures encouraged investors to pile into cotton, mitigating somewhat concerns about how much the disasters in Japan will impact cotton demand.
On a technical level, the May contract finished above the 20-day moving average at $1.9815 and this could mean a push to clear strong resistance over $2 going next week, analysts said. The next bit of information which will provide direction for cotton futures would be the potential plantings report by the US Agriculture Department due out on March 31.
That is the first government survey of likely plantings for major row crops like cotton, corn, soybeans and wheat in 2011. Despite the rally, cotton has to compete for acreage against similarly high-priced grains this year. Analytical firm Informa Economics projected on Friday US farmers will plant 13.13 million acres to cotton, a level that would be the highest in 5 years.