Cotton futures ended the week with modest gains in the middle of a lower range amid light volume, as mills work down their inventories, analysts said on Friday. Key March cotton futures closed 0.54 cent higher at 91.84 cents per lb. It set its second inside trading day in a row, meaning a lower high and a higher low, as the range narrowed between 90.92 to 92.27 cents.
Analysts said they think the sideways range developing since November 21 is setting up for a break to the upside. An attempt to push lower on November 29 failed and light but consistent buying has kept cotton supported. On Friday, volume was especially thin at around 6,127 total contracts, close to 75 percent below the 30-day average, according to ICE Futures data.
The previous session's volume came to 14,730 contracts. "It was definitely a slow day with low volume. The narrower range suggests we're going to test one side or the other and see who comes out ahead," Sharon Johnson, senior cotton analyst at Penson Futures in Atlanta. More positive economic readings recently and improving cotton export data may push cotton towards the upside.
"The unemployment number helped a little bit today. But, once the bloom is off the bush, with positive export numbers yesterday, after midday things slowed down," Johnson said. US employment growth picked up speed in November and the jobless rate dropped to a 2-1/2 year low of 8.6 percent, further evidence the economic recovery was gaining momentum.
On Thursday, USDA said net upland cotton sales hit 85,000 running bales (RBs, 500-lbs each), of which China accounted for 65,000 RBs. Over the preceding three weeks, USDA's weekly export sales data showed China bought over 2.3 million running bales (RBs 500-lbs each) as it replenishes state stocks. USDA's monthly supply and demand report comes out next Friday and analysts said they expect a mixed bag, with a positive tone as the pick up in exports filters into world consumption figures.
A lot of cotton mills continue to licking their wounds after having bought the fibre at much loftier levels and then watching prices fall sharply from those highs. Moreover, credit conditions remain tight. "So, the mills have had the worst of both worlds. But now they are starting to get rid of enough of the old crop so that they are buying more of the new," Johnson said.
New crop March cotton's trend has been gently edging up after sliding on November 29 to a near 13-month low of 88.50 cents. For a second position contract, it was the lowest intra-day level since September 2010, Thomson Reuters data showed. Open interest in the cotton market, usually taken as an indicator of investor exposure in the market, came to 137,145 lots on Thursday, down from 137,741 lots on Wednesday, exchange data showed.