Cotton futures settled higher Tuesday on thin investor short-covering as the market tested the upper end of its trading band while looking toward release of a government crop report on Friday, analysts said. Key March cotton futures gained 1.59 cents, or 1.7 percent, to finish at 93.81 cents per lb, moving from 91.51 to 93.63 cents.
Volume traded on Tuesday stood at around 11,300 lots, more than 50 percent under the 30-day average, according to ICE Futures data. Cotton futures are "moving toward the high end of the trading range" after holding last week at 90 cents, said Mike Stevens, an independent cotton analyst in Mandeville, Louisiana. He said the moving averages sitting above the March cotton contract are a target for investors buying into the market.
That would be the 20-day moving average (MA) at 94.33 cents, the 40-day MA at 96.44 cents and then the 55-day MA some players use which is about 97.76 cents, according to Thomson Reuters data. Analysts said the market will likely stay in a band from 90 to 94 cents until the release on Friday of the US Agriculture Department's monthly supply/demand report.
USDA is expected to reduce its estimate for US 2011/12 cotton production and US 2011/12 cotton exports. USDA had forecast US 2011/12 cotton production at 16.3 million (480-lb bales) in its November supply data, from 16.61 million bales in the preceding month. Another government report the trade will look at is the USDA's weekly export sales report on Thursday that will gauge the sales pace of US cotton exports.
Open interest in the cotton market, usually taken as an indicator of investor exposure in the market, came to 139,061 lots on Monday, from the prior session's 137,826 lots, exchange data showed. Volume traded Monday reached 10,239 lots, from the prior session's 7,901 lots, ICE Futures US data reported.