Cotton prices hit their highest in nearly five months, amid
concerns over US inventories, and growing confidence that China - for now –
will avoid dumping its huge stocks onto the market.
Cotton for March touched 86.67 cents a pound in New York,
the highest for a spot contract since August, before easing back to stand at
86.27 cents a pound in midday trading, a gain of 1.5%.
The rise was helped by a recovery in US export sales from a
Christmas lull, reaching a four-week high of 223,735 tonnes for 2013-14 crop in
the first week of January.
"Sales were up noticeably from the previous week and 46%
from the prior four-week average," the US Department of Agriculture said.
However, waning concerns over releases from China's huge inventories,
accounting for nearly half the world total, and doubts over US supplies added
to buyers' confidence.
'We have this bomb'
While China had the potential to sink prices by releasing some
of its huge stocks, "it looks like the market believes that China is not going
to let much cotton go, and when it does, it may be of low quality," said Keith
Brown, at US-based cotton broker Keith Brown & Co.
"It is like China saying that 'we have this bomb to drop,
but we are not going to drop it'," Mr Brown said, if adding that the market
would not, for ever, avoid a reckoning with the huge inventories, equivalent to
more than one year's worth of Chinese consumption.
He also flagged expectations that the US Department of
Agriculture will, in its February Wasde crop report, cut the forecast for
domestic cotton stocks from the current estimate of 3m bales.
"Talking through the country, no one seems to know where
this 3m bales is residing," he told Agrimoney.com.
However, Mr Brown forecasts limits to cotton's price rally,
with a price of 88-89 cents a pound likely to bring more supplies "out of the
woodwork", from countries such as India.
Traders wishing to judge the judge when to quit the rally
may be wise to look at data on open interest, the number of cotton futures
"The last three big rallies in cotton peaked when open
interest was spiking," he said.