Cotton surges by exchange limit to record on supply shortfall

21 Dec, 2010 - Global  

Cotton futures in New York jumped to a record, gaining by the daily limit for a second day, on speculation that global demand led by China will surpass supply. 

Cotton for March delivery advanced 5 cents, or 3.2 percent, to an all-time high of $1.5912 a pound on ICE Futures U.S. in New York. Prices have more than doubled this year, heading for the biggest annual gain since 1973. 

“It’s driven by tight supply,” said Hiroyuki Kikukawa, the general manager of research at IDO Securities Co. in Tokyo. “The market is extremely overbought and we may see a small correction later this week before the Christmas holiday.” 

Cotton’s 14-day relative strength index has since Dec. 17 been above 70, a level some investors use to predict that the price of an asset is poised to fall. 

The Thomson Reuters/Jefferies CRB Index of 19 commodities extended its rally yesterday to the highest level in more than two years as cotton surged and most other raw materials advanced. The index gained 1.1 percent to 324.27, the highest level since Oct. 6, 2008. 

Australian cotton production this season may total 3.8 million bales, with some reduction to the forecast possible because of excess rains and flooding, National Australia Bank Ltd. said in an e-mailed report today. “Indications suggest that crop loss is not major,” the bank said. 

Production in India, the world’s second-biggest grower, will be less than previously forecast after excess rainfall curbed harvests in some areas, the Cotton Association said yesterday. 

Supply Shortfall 

Output in China’s Shandong province, the nation’s second- biggest producer, dropped 22 percent this year from 2009 after natural disasters hurt crops, the region’s Agriculture Information Center said in a report Dec. 17. 

Demand in China is forecast to outpace supply by 17 million bales in the year ending July 31, according to the U.S. Department of Agriculture. Stockpiles in the U.S., the world’s biggest supplier, will decline to a 14-year low for the year ending July 31, the USDA said. 

Cotton for September delivery on the Zhengzhou Commodity Exchange rose as much as 2.2 percent from the previous settlement to 29,040 yuan ($4,361) a ton before trading at 28,870 yuan at 1:33 p.m. local time. 

Source: Bloomberg

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